Sea Annual Report 2020 | Quarterlytics

Plain-text annual report

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549_______________________FORM 20-F(Mark One)☐REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934OR☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2020.OR☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from ____________ to ____________OR☐SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934Date of event requiring this shell company reportCommission file number: 001-38237Sea Limited(Exact name of Registrant as specified in its charter) _______________________N/A(Translation of Registrant’s name into English)Cayman Islands(Jurisdiction of incorporation or organization)1 Fusionopolis Place, #17-10, GalaxisSingapore 138522(Address of principal executive offices)Yanjun Wang, Esq.Sea Limited1 Fusionopolis Place, #17-10, GalaxisSingapore 138522Tel: +65 6270-8100E-mail: secnotice@sea.com(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)Securities registered or to be registered pursuant to Section 12(b) of the Act:Title of each classTrading SymbolName of each exchange on which registeredAmerican Depositary Shares, each representing one Class Aordinary shareSENew York Stock ExchangeClass A ordinary shares, par value US$0.0005 per share* * Not for trading, but only in connection with the listing ofAmerican Depositary Shares on the New York Stock Exchange. Securities registered or to be registered pursuant to Section 12(g) of the Act:None(Title of Class)Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:None(Title of Class)Indicate the number of outstanding shares of each of the Issuer’s classes of capital or common stock as of the close of the period covered by the annualreport.359,755,767 Class A ordinary shares and 152,175,703 Class B ordinary shares, par value US$0.0005 per share, as of December 31, 2020Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of theSecurities Exchange Act of 1934. Yes ☐ No ☒Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for thepast 90 days. Yes ☒ No ☐Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 ofRegulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. Seedefinition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):Large accelerated filer ☒Accelerated filer ☐Non-accelerated filer ☐Emerging growth company ☐If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected notto use the extended transition period for complying with any new or revised financial accounting standards † provided pursuant to Section 13(a) of the Exchange Act.☐Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal controlover financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its auditreport. ☒ Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:U.S. GAAP ☒ International Financial Reporting Standards as issued by the International Accounting Standards Board ☐ Other ☐If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.Item 17 ☐ Item 18 ☐If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities ExchangeAct of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☐ No ☐ ___________________________† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its AccountingStandards Codification after April 5, 2012.Table of ContentsTABLE OF CONTENTS Page INTRODUCTION4 PART I6 ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS6 ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE6 ITEM 3. KEY INFORMATION6 ITEM 4. INFORMATION ON THE COMPANY42 ITEM 4A. UNRESOLVED STAFF COMMENTS80 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS80 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES103 ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS114 ITEM 8. FINANCIAL INFORMATION115 ITEM 9. THE OFFER AND LISTING116 ITEM 10. ADDITIONAL INFORMATION116 ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK130 ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES131 PART II132 ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES132 ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS132 ITEM 15. CONTROLS AND PROCEDURES132 ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT133 ITEM 16B. CODE OF ETHICS133 ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES134 ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES134 ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS134 ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT134 ITEM 16G. CORPORATE GOVERNANCE134 ITEM 16H. MINE SAFETY DISCLOSURE135 PART III135 ITEM 17. FINANCIAL STATEMENTS135 ITEM 18. FINANCIAL STATEMENTS135 ITEM 19. EXHIBITS1363Table of ContentsCONVENTIONS THAT APPLY TO THIS ANNUAL REPORT ON FORM 20-FUnless otherwise indicated and except where the context otherwise requires:●“2023 convertible notes” refers to our 2.25% convertible senior notes due 2023, which were issued in June 2018 and referred to as “2018 convertiblenotes” in our Annual Report on Form 20-F for the year ended December 31, 2019;●“2024 convertible notes” refers to our 1.00% convertible senior notes due 2024, which were issued in November 2019 and referred to as “2019 convertiblenotes” in our Annual Report on Form 20-F for the year ended December 31, 2019;●“2025 convertible notes” refers to our 2.375% convertible senior notes due 2025, which were issued in May 2020;●“active users” refers to the number of unique accounts that interacted with our mobile and PC online games or Shopee marketplace, as applicable, in aparticular period. A single account that plays more than one online game or in more than one market is counted as more than one active user. “DAUs”refers to the aggregate number of active users during the daily period, and “QAUs” refers to the aggregate number of active users during the quarterlyperiod;●‘‘ADSs’’ refers to the American Depositary Shares, each of which represents one of our Class A ordinary shares, par value US$0.0005 per share;●“China” or “PRC” refers to the People’s Republic of China excluding, for the purpose of this annual report only, Taiwan, Hong Kong and Macau;●“gross merchandise value” or “GMV” refers to the value of orders of products and services on our Shopee marketplace. Our calculation of GMV for oure-commerce platform includes shipping and other charges;●“orders” refers to each confirmed order from a transaction between a buyer and a seller for products and services on our e-commerce platform, even ifsuch order includes multiple items, during the specified period, regardless of whether the transaction is settled or if the item is returned;●“our region” comprises the seven distinct markets of Indonesia, Taiwan, Vietnam, Thailand, the Philippines, Malaysia and Singapore;●“paying users” refers to the number of unique accounts through which a payment is made in our online games in a particular period. A unique accountthrough which payments are made in more than one online game or in more than one market is counted as more than one paying user. “QPUs” refers tothe aggregate number of paying users during the quarterly period;●“shares” or “ordinary shares” refer to our Class A ordinary shares, par value US$0.0005 per share, and our Class B ordinary shares, par value US$0.0005per share; and●“we,” “us,” “our company,” “our group,” “our” or “Sea” refers to Sea Limited, a Cayman Islands company, its consolidated subsidiaries and itsconsolidated affiliated entities, including its variable interest entities, or VIEs, and their subsidiaries and consolidated affiliated entities.Our reporting and functional currency is the U.S. dollar. This annual report contains translations of certain foreign currency amounts into U.S. dollars for theconvenience of the reader. Unless otherwise stated, all translations from Indonesian rupiah into U.S. dollars have been made at the rate of IDR14,105.00 to US$1.00,being the foreign exchange reference rate and the Jakarta interbank spot dollar rate published by the Bank Indonesia in effect as of December 30, 2020, all translationsof New Taiwan dollars, Thai baht and Singapore dollars into U.S. dollars have been made at the rates of NT$28.0800 to US$1.00, THB30.0200 to US$1.00 and S$1.3214to US$1.00, respectively, being the noon buying rates in The City of New York for cable transfers in New Taiwan dollars, Thai baht and Singapore dollars as certifiedfor customs purposes by the Federal Reserve Bank of New York in effect as of December 31, 2020 set forth in the H.10 statistical release of the U.S. Federal ReserveBoard for translation into U.S. dollars, and all translations from Vietnamese dong into U.S. dollars made at the rate of VND23,131 to US$1.00, being the central ratepublished by The State Bank of Vietnam in effect as of December 31, 2020. We make no representation that the Indonesian rupiah, New Taiwan dollar, Vietnamesedong, Thai baht or Singapore dollar amounts referred to in this annual report could have been or could be converted into U.S. dollars at any particular rate or at all. See“Item 3. Key Information—D. Risk Factors—Business and Operational Related Risks—Risks Applicable Across Multiple Businesses—Fluctuations in foreigncurrency exchange rates may adversely affect our operational and financial results, which we report in U.S. dollars.” On April 9, 2021, the Jakarta interbank spot dollarrate for Indonesian rupiah was IDR14,580.00 to US$1.00, the noon buying rate for New Taiwan dollars was NT$28.4300 to US$1.00, the central rate for Vietnamesedong was VND23,214 to US$1.00, the noon buying rate for Thai baht was THB31.4500 to US$1.00 and the noon buying rate for Singapore dollars was S$1.3406 toUS$1.00.4Table of ContentsFORWARD-LOOKING STATEMENTSThis annual report contains forward-looking statements that involve risks and uncertainties. All statements other than statements of current or historicalfacts are forward-looking statements. These forward-looking statements are made under the “safe harbor” provision under Section 21E of the Securities Exchange Actof 1934, as amended, and as defined in the Private Securities Litigation Reform Act of 1995. These statements involve known and unknown risks, uncertainties andother factors, including those listed under “Item 3. Key Information—D. Risk Factors,” that may cause our actual results, performance or achievements to be materiallydifferent from those expressed or implied by the forward-looking statements.In some cases, you can identify these forward-looking statements by words or phrases such as “may,” “could,” “will,” “expect,” “anticipate,” “aim,”“estimate,” “intend,” “plan,” “believe,” “likely to,” “potential” or other similar expressions. We have based these forward-looking statements largely on our currentexpectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy andfinancial needs. These forward-looking statements include statements about:●our goals and strategies;●our future business development, financial condition, financial results, and results of operations;●the expected growth in, and market size of, the digital entertainment, e-commerce and digital financial services industries in the markets where we operate,including segments within those industries;●expected changes in our revenue, costs or expenditures;●our ability to continue to source, develop and offer new and attractive online games and to offer other engaging digital entertainment content;●the expected growth of our digital entertainment, e-commerce and digital financial services businesses;●our expectations regarding growth in our user base, level of engagement and monetization;●our ability to continue to develop new technologies and/or upgrade our existing technologies;●our expectation regarding the use of proceeds from our financing activities, including our follow-on equity offerings and convertible notes offerings;●growth and trends of our markets and competition in our industries;●government policies and regulations relating to our industries;●general economic and business conditions in our markets; and●the impact of widespread health developments, including the COVID-19 pandemic, and the responses thereto (such as voluntary and in some cases,mandatory quarantines as well as shut downs and other restrictions on travel and commercial, social and other activities, and the availability of effectivevaccines or treatments) which could, among other things, impact the business and manufacturing activities of our ecosystem participants, disrupt theglobal supply chain including those of our sellers on our platforms and merchant partners, and negatively affect consumer discretionary spending.You should read this annual report with the understanding that our actual future results may be materially different from and worse than what we expect.Other sections of this annual report include additional factors which could adversely impact our business and financial performance. Moreover, we operate in anevolving environment. New risk factors and uncertainties emerge from time to time and it is not possible for our management to predict all risk factors anduncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differmaterially from those contained in any forward-looking statements. We qualify all of our forward-looking statements by these cautionary statements.You should not rely on forward-looking statements as predictions of future events. The forward-looking statements made in this annual report relate only toevents or information as of the date on which the statements are made in this annual report. Except as required by law, we undertake no obligation to update or reviseany forward-looking statements, whether as a result of new information, future events or otherwise.This annual report also contains statistical data and estimates that we obtained from industry publications and reports generated by government or third-party providers of market intelligence. Although we have not independently verified the data, we believe that the publications and reports are reliable. See “Item 3.Key Information—D. Risk Factors—Business and Operational Related Risks—Other Operational Risks—Industry data, projections and estimates contained in thisannual report are inherently uncertain and subject to interpretation.”5Table of ContentsPART IITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERSNot applicable.ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLENot applicable.ITEM 3.KEY INFORMATIONA.Selected Financial DataSelected Consolidated Financial DataThe following selected consolidated statements of operations data for the years ended December 31, 2018, 2019 and 2020 and selected consolidated balancesheets data as of December 31, 2019 and 2020 have been derived from our audited consolidated financial statements included elsewhere in this annual report. Thefollowing selected consolidated statements of operations data for the year ended December 31, 2016 and 2017 and selected consolidated balance sheets data as ofDecember 31, 2016, 2017 and 2018 are derived from our audited consolidated financial statements, which are not included in this annual report. Our consolidatedfinancial statements are prepared and presented in accordance with U.S. GAAP. The selected consolidated financial data should be read in conjunction with, and arequalified in their entirety by reference to, our audited consolidated financial statements and related notes and “Item 5. Operating and Financial Review and Prospects”included elsewhere in this annual report. Our historical results are not necessarily indicative of results expected for future periods. For the Year Ended December 31, 2016 2017 2018 2019 2020 (US$ thousands, except for number of shares and per share data) Selected Consolidated Statements of Operations Data: Revenue: Service revenue Digital Entertainment 327,985 365,167 462,464 1,136,017 2,015,972 E-commerce and other services 17,675 47,444 270,049 822,659 1,777,330 Sales of goods 10 1,579 94,455 216,702 582,362 Total revenue 345,670 414,190 826,968 2,175,378 4,375,664 Cost of revenue: Cost of service Digital Entertainment (185,314) (217,986) (267,359) (435,905) (702,329)E-commerce and other services (47,284) (107,260) (446,281) (907,518) (1,743,773)Cost of goods sold — (1,632) (98,570) (227,035) (580,657)Total cost of revenue (232,598) (326,878) (812,210) (1,570,458) (3,026,759)Gross profit 113,072 87,312 14,758 604,920 1,348,905 Operating income (expenses): Other operating income 2,103 3,497 9,799 15,890 189,645 Sales and marketing expenses (187,372) (425,974) (705,015) (969,543) (1,830,875)General and administrative expenses (112,383) (137,868) (240,781) (385,865) (657,215)Research and development expenses (20,809) (29,323) (67,529) (156,634) (353,785)Total operating expenses (318,461) (589,668) (1,003,526) (1,496,152) (2,652,230)Operating loss (205,389) (502,356) (988,768) (891,232) (1,303,325)Interest income 741 2,922 11,520 33,935 24,804 Interest expense (23) (26,501) (31,295) (48,208) (148,243)Investment gain (loss), net 9,434 33,591 8,603 11,794 (17,820)Changes in fair value of convertible notes — (51,950) 41,259 (472,877) (87)Foreign exchange (loss) gain (1,649) (4,215) 4,801 (2,031) (38,567)Loss before income tax and share of results of equity investees (196,886) (548,509) (953,880) (1,368,619) (1,483,238)Income tax expense (8,546) (10,745) (4,088) (85,864) (141,640)Share of results of equity investees (19,523) (1,912) (3,066) (3,239) 721 Net loss (224,955) (561,166) (961,034) (1,457,722) (1,624,157)Net loss (profit) attributable to non-controlling interests 2,088 681 (207) (5,077) 6,101 Net loss attributable to Sea Limited’s ordinary shareholders (222,867) (560,485) (961,241) (1,462,799) (1,618,056)Loss per share: Basic and diluted (1.30) (2.72) (2.84) (3.35) (3.39)Weighted average shares used in loss per share computation: Basic and diluted 171,127,788 205,727,195 338,472,987 436,601,801 477,264,888 Non-GAAP Financial Measure: Net loss excluding share-based compensation and changes infair value of the 2017 convertible notes(1) (196,114) (480,580) (944,172) (867,776) (1,333,824) (1)To see how we define and calculate “net loss excluding share-based compensation and changes in fair value of the 2017 convertible notes,” a reconciliationbetween such item and net loss (the most directly comparable U.S. GAAP financial measure) and a discussion of the limitations of non-GAAP financialmeasures, see “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Non-GAAP Financial Measures.”6Table of Contents As of December 31, 2016 2017 2018 2019 2020 (US$ thousands) Selected Consolidated Balance Sheets Data: Total current assets 309,884 1,720,713 1,710,713 4,410,139 8,939,004 Cash and cash equivalents 170,078 1,347,361 1,002,841 3,118,988 6,166,880 Prepaid expenses and other assets 79,443 186,181 312,387 535,187 1,054,229 Loans receivable — — — — 285,937 Total non-current assets 175,891 267,567 481,956 814,030 1,516,667 Property and equipment, net 31,123 74,348 192,357 318,620 386,401 Operating lease right-of-use assets, net — — — 182,965 234,555 Long-term investments 45,072 28,216 111,022 113,797 190,482 Prepaid expenses and other assets 32,299 46,297 69,065 65,684 204,804 Loans receivable — — — — 117,149 Total assets 485,775 1,988,280 2,192,669 5,224,169 10,455,671 Total current liabilities 263,756 637,705 1,186,493 2,362,366 4,636,067 Accrued expenses and other payables 102,086 285,248 636,880 980,805 2,033,461 Advances from customers 15,459 27,155 29,355 65,062 161,379 Deferred revenue 122,218 268,241 426,675 1,097,868 2,150,165 Total non-current liabilities 142,594 875,444 1,245,631 1,689,151 2,399,365 Deferred revenue 137,259 133,481 171,262 160,708 343,297 Convertible notes — 726,950 1,061,796 1,356,332 1,840,406 Total liabilities 406,350 1,513,149 2,432,124 4,051,517 7,035,432 Total mezzanine equity 205,075 — — — — Total Sea Limited shareholders’ (deficit) equity (125,670) 469,025 (243,139) 1,162,424 3,382,912 Total shareholders’ (deficit) equity (125,650) 475,131 (239,455) 1,172,652 3,420,239 Total liabilities, mezzanine equity and shareholders’ (deficit) equity 485,775 1,988,280 2,192,669 5,224,169 10,455,671 Selected Operating DataThe table below sets forth the key metrics across our digital entertainment and e-commerce businesses for the periods indicated. For the Three Months Ended March 31,2019 June 30,2019 September 30,2019 December 31,2019 March 31,2020 June 30,2020 September 30,2020 December 31,2020 (billions, unless otherwise indicated) Digital Entertainment Bookings (US$)(1) 0.4 0.4 0.5 0.5 0.5 0.7 0.9 1.0 Game QAUs (in millions) 271.6 310.5 321.1 354.7 402.1 499.8 572.4 610.6 Game QPUs (in millions) 20.7 26.1 29.2 33.3 35.7 49.9 65.3 73.1 E-commerce GMV (US$) 3.5 3.8 4.6 5.6 6.2 8.0 9.3 11.9 Orders 0.2 0.2 0.3 0.4 0.4 0.6 0.7 1.0 (1)GAAP revenue for the digital entertainment segment plus change in digital entertainment deferred revenue.The table below sets forth the key metrics of our digital financial services business for the periods indicated. For the Three Months Ended March 31, 2020 June 30, 2020 September 30, 2020 December 31, 2020 Digital Financial Services Mobile wallet total payment volume (US$ in billions) 1.1 1.6 2.2 2.9 Mobile wallet QPUs (in millions) 10.5 15.6 17.9 23.2 B.Capitalization and IndebtednessNot applicable.7Table of ContentsC.Reasons for the Offer and Use of ProceedsNot applicable.D.Risk FactorsSUMMARY OF RISK FACTORSWe believe some of the major risks and uncertainties that may materially and adversely affect us include the following:BUSINESS AND OPERATIONAL RELATED RISKSRisks Applicable Across Multiple Businesses●We may fail to maintain or grow the size of our user base or the level of engagement of our users.●We may fail to monetize our businesses effectively.●We have a history of net losses and we may not achieve profitability in the future.●The COVID-19 pandemic has affected our business activities and results. Any future occurrence of natural disasters, epidemics, pandemics or otheroutbreaks, or other catastrophic events could also adversely affect our business.●We may not succeed in managing or expanding our business across the expansive and diverse markets in which we operate.●We are subject to extensive and changing laws and government regulations across our business.●We may fail to compete effectively.●Existing or future investments or acquisitions may not be successful.●Our results of operations are subject to fluctuations.●We have a limited operating history for some of our businesses.●Our businesses involve third parties over whose actions we have no control.●Fluctuations in foreign currency exchange rates may adversely affect our operational and financial results, which we report in U.S. dollars.●We may be subject to intellectual property-related risks.●We may be liable for security breaches and attacks against our or our third-party partners’ platforms and network, particularly with regard to confidentialuser information and personal or other data or any other privacy or data protection compliance issue, and our platforms and games may containunforeseen “bugs” or errors.●We collect, process, transmit, and store personal information in connection with the operation of our businesses and are subject to complex andevolving international laws and regulations regarding privacy and data protection.Risks Related to Our Digital Entertainment Business●We derive a significant portion of digital entertainment revenue and gross profit from a limited number of online games.8Table of Contents●We have a limited track record in game development and global game distribution.●We rely on third-party game developers for some of the content of our digital entertainment platform.●Our games are subject to scrutiny regarding the appropriateness of their content.Risks Related to Our E-Commerce Business●We face uncertainties relating to the growth and profitability of the e-commerce industry in our markets and we may face challenges and uncertainties inimplementing our e-commerce strategy.●We may suffer losses relating to the products we sell on Shopee.Risks Related to Our Digital Financial Services Business●We face uncertainties and risks relating to our digital financial services business.●We could be held liable if our digital financial services and products are used for fraudulent, illegal or improper purposes.●Our banking business may subject us to additional material business, operational, financial, legal and compliance requirements and risks.●We face risks related to our lending and consumer credit businesses.Other Operational Risks●We rely on technology and internet infrastructure, data center and cloud service providers and telecommunications networks in the markets where weoperate.●We may fail to attract, motivate and retain the key members of our management team or other experienced and capable employees.●We may be subject to risks related to litigation and regulatory proceedings.●We rely on structural arrangements to establish control over certain entities and government authorities may determine that these arrangements do notcomply with existing laws and regulations. We are also subject to other risks relating to such structural arrangements.MARKETS RELATED RISKS●Changes in economic, political or social conditions or government policies in our markets could have a material adverse effect on our business andoperations.RISKS RELATED TO THE ADSs●The trading price of the ADSs is likely to be volatile, which could result in substantial losses to investors.BUSINESS AND OPERATIONAL RELATED RISKSRisks Applicable Across Multiple BusinessesWe may fail to maintain or grow the size of our user base or the level of engagement of our users.The size and engagement level of our user base are critical to our success. Our business and financial performance have been and will continue to besignificantly determined by our success in adding, retaining and engaging active users. We continue to invest significant resources to grow our user base andincrease user engagement, whether through innovations, providing new or improved content or services, marketing efforts or other means. While our user base hasexpanded significantly in the past, our user base and engagement levels may not continue growing at satisfactory rates, or at all. Our user growth and engagementcould be adversely affected if:9Table of Contents●we fail to maintain the popularity of our platforms among users;●we are unable to maintain the quality of our existing content and services;●we are unsuccessful in innovating or introducing new, best-in-class content and services;●we fail to adapt to changes in user preferences, market trends or advancements in technology;●technical or other problems prevent us from delivering our content or services in a timely and reliable manner or otherwise affect the user experience;●there are user concerns related to privacy, data protection, safety, fund security or other factors;●monetization measures by us cause users to shift to other platforms;●our new games cause players to shift from our existing games without growing the overall size of our user base or online games platform;●there are adverse changes to our platforms or offerings that are mandated by, or that we elect to make to address, legislation, regulation or litigation,including settlements or consent decrees;●our users fail to accept or comply with our terms of service or the privacy policies that we have implemented or may implement, or we adopt terms,policies, or procedures that are perceived negatively by our users;●our marketing campaigns or promotional strategies fail to achieve the intended effects among users – for example, users may develop negativeperceptions towards our marketing campaigns or promotional strategies;●we are unable to achieve the expected synergies among our businesses, we are unable to achieve synergies in a cost-effective manner, or we fail tobalance the interests of all participants in our ecosystem;●we fail to maintain the brand image of our platforms or our reputation is damaged or changes negatively; or●there are unexpected changes to the demographic trends or economic development of or affecting our markets.Our efforts to avoid or address any of these events could require us to incur substantial expenditure to modify or adapt our content, services or platforms. Ifwe fail to retain or continue growing our user base, or if our users reduce their engagement with our platforms, our business, financial condition and results ofoperations could be materially and adversely affected.We may fail to monetize our businesses effectively.Our financial performance largely depends on our ability to monetize our businesses, and our failure to do so could materially and adversely affect ourbusiness, financial condition and results of operations.In order to sustain revenue growth for our digital entertainment business, we must maintain paying users and convert active game players to paying usersand increase their spending. Spending in our games is discretionary and our users may be price-sensitive, which may negatively affect our ability to monetize ourbusiness. It is crucial to balance creating sufficient in-game monetization opportunities on the one hand, and ensuring our games continue to attract a considerablenumber of users by offering them an enjoyable free-to-play experience on the other. To stimulate in-game spending, we need to continue to ensure that our games areengaging, the in-game items we offer are appealing, our monetization strategies comply with applicable laws and regulations, our prices are attractive and ourmarketing and promotional activities, such as esports events, are effective.10Table of ContentsOur focus for our e-commerce business has been on building the ecosystem of sellers and buyers and improving the shopping experience. We monetizeShopee mainly by offering sellers paid advertising services, charging transaction-based fees, and charging for certain value-added services. If our efforts to monetizeour e-commerce business are not successful, revenue generated from monetizing our Shopee marketplace may not offset its significant operating costs, causing it tooperate with losses. Moreover, monetization efforts could increase the costs of using our Shopee platform to users, which could negatively affect the number of usersand the level of user engagement on our platform.We mainly monetize our digital financial services business by charging commissions to third-party merchants with respect to our mobile wallet services, andby earning interest from borrowers with respect to our consumer credit business. Our ability to continue to successfully monetize our digital financial servicesbusiness in the future will depend significantly on expanding our user base and the number of use cases available, neither of which may be achieved at the level weanticipate. In addition, we may offer new digital financial services and products or offer existing services and products to new markets. Our monetization efforts or ourexpansion into new services on our digital financial services platform may not succeed or generate revenue at levels we expect, or at all.For all our businesses, we invest in user data analysis to better understand user consumption patterns. This allows us to introduce content and services thatare appealing to paying users on all our platforms and to properly deploy and price content and services to enhance our monetization. However, data analysisinvolves a substantial amount of judgment and discretion. If we fail to properly interpret the data collected from our operations or convert our data analysis resultsinto effective business strategies, our monetization may not be successful.We have a history of net losses and we may not achieve profitability in the future.We had net losses of US$961.0 million, US$1,457.7 million and US$1,624.2 million in 2018, 2019 and 2020, respectively. Our net losses in 2020 were primarilydue to our investments in expanding our businesses, in particular our e-commerce and digital financial services businesses. In 2018, 2019 and 2020, our sales andmarketing expenses equaled 85.3%, 44.6% and 41.8% of our total revenue, respectively. Our operating expenses may continue to increase as we invest in expandingour businesses, including offering new content and services, and hiring additional headcount. These efforts may be costlier than we expect and our revenue may notincrease sufficiently to offset these expenses.We may continue to take actions and make investments that do not generate immediate positive financial returns and may result in increased operating lossesor other losses in the short term with no assurance that we will eventually achieve the intended long-term benefits or profitability. These factors, among others set outin this “Item 3. Key Information—D. Risk Factors” section, may negatively affect our ability to achieve profitability in the near term, if at all.The COVID-19 pandemic has affected our business activities and results. Any future occurrence of natural disasters, epidemics, pandemics or other outbreaks, orother catastrophic events could also adversely affect our business.COVID-19, which was characterized as a pandemic by the World Health Organization, or the WHO, in March 2020, and the measures to contain its spreadhave resulted in business and manufacturing disruptions in our markets, impacted the business activities of our ecosystem participants, and disrupted the globalsupply chain including those of our sellers on our platform and merchant partners. For example, regional and global logistic costs had temporarily increased due toCOVID-19 effects. Our users’ spending power may also be negatively affected if the global or their local economies are negatively affected. If the pandemic worsensand measures put in place to curb its spread and to stabilize the economy are not effective or if we are ordered by any authorities to suspend or close our materialoperations, our business, financial condition and results of operations could be materially and adversely affected.11Table of ContentsCOVID-19 has affected and may continue to affect our businesses and our users’ behaviors. While lockdown and social distancing measures implemented tocontrol the spread of COVID-19 have led to increased adoption of e-commerce and usage of other online platforms, such increased adoption may not continue. Theextent of the impact of COVID-19 on our operational and financial performance depends on many factors, including the duration and control of the outbreak, theavailability and effectiveness of vaccines and treatments, and actions taken by authorities and other parties in our ecosystem. To the extent users of online platformsrevert to pre-COVID-19 behaviors, our growth prospects may not be as strong as otherwise.Similarly, our business, financial condition and results of operations could be materially and adversely affected by severe weather conditions, naturaldisasters, geopolitical events, terrorist attacks, the occurrence or re-occurrence of other outbreaks, epidemics or pandemics, including avian influenza, severe acuterespiratory syndrome, the influenza A (H1N1) or H7N9, and other catastrophic events that disrupt our operations, adversely affect our markets or the economygenerally or adversely affect our employees, third-party service providers, business partners or a significant portion of our users.We may not succeed in managing or expanding our business across the expansive and diverse markets in which we operate.Our business has become increasingly complex as we have expanded the scale of our operations and the markets in which we operate. We have significantlyexpanded and expect to continue to expand our business coverage, headcount, office facilities and infrastructure. Further, as Free Fire continues to gain momentum inglobal markets, our game operations have expanded beyond our traditional markets in Southeast Asia and Taiwan. Free Fire is currently available in more than 130markets, and particularly has growing user bases in Brazil, Mexico, India, North America, Russia and the Middle East. We have opened offices and hired local staff inLatin America to focus on Latin America’s local game operations and community engagement. In addition, we recently expanded our Shopee business to LatinAmerica. When opportunities arise, we may further expand our geographic coverage beyond our traditional core markets and offer more products beyond our existingofferings. It is costly to establish, develop and maintain international operations, adapt our business model to new or diverse regulatory environments and to promoteour brand internationally. Our international operations may not become profitable on a sustainable basis, if at all. As our operations continue to expand, ourtechnology infrastructure systems and corporate, legal and compliance functions will need to be scaled to support our operations, and if they fail to do so, ourbusiness, financial condition and results of operations may be negatively affected.The markets where we operate or expand to are diverse and unique, with varying levels of economic and infrastructure development and distinct legal andregulatory systems, and do not operate seamlessly across borders as a single or common market. Managing our growing businesses across these markets requiresconsiderable management attention and resources. Our growing multi-market operations also require certain additional costs, including costs relating to staffing,logistics, intellectual property protection, regulatory and compliance, tariffs and other trade barriers and higher tax rates in certain markets. We may be less well-knownor have fewer local resources and we may be unsuccessful in adapting our business practices, culture and operations.Our operations and expansions in new markets may become subject to risks associated with:●user acceptance of a digital economy, especially in the new markets to which we have expanded or may expand in the future;●lack of experience operating in these new markets;●recruiting and retaining talented and capable management and employees in various markets;●limited technology infrastructure and low levels of use of the internet;●challenges caused by distance, language and cultural differences, and local and regional competitive landscapes;●providing content and services that appeal to the tastes and preferences of users in a larger number of markets;12Table of Contents●implementing our businesses in a manner that complies with local laws and practices, which may differ significantly from market to market, including lawsregarding data protection, privacy, network security, cybersecurity, encryption and payments;●maintaining adequate internal and accounting control across various markets, each with its own accounting principles that must be reconciled to U.S.GAAP upon consolidation;●compliance with privacy laws and data security laws, including the European Union General Data Protection Regulation, or GDPR, and compliance costsacross different legal systems;●currency exchange rate fluctuations;●protectionist laws and business practices that could, among other things, hinder our ability to execute our business strategies and put us at acompetitive disadvantage relative to domestic companies, including restrictions on foreign ownership;●complex local tax regimes;●differing, complex and potentially adverse customs, import/export laws, tax rules and regulations or other trade barriers or restrictions which may beapplicable to transactions conducted through cross-border e-commerce business, related compliance obligations and consequences of non-compliance,and any new developments in these areas;●establishing strategic partnerships to expand and grow our business, as well as maintaining our relationships with any of our existing or future strategicpartners;●potential political, economic and social instability; and●higher costs associated with doing business in a larger number of markets.Any of the foregoing could negatively affect our business, financial condition and results of operations.As the consumer internet business is relatively new, the relevant regulations are evolving and expanding, especially as we expand the scope of ourbusinesses and enter into new markets. We may be regularly subject to formal and informal reviews, inquiries and investigations by governments and regulatoryauthorities. Unfavorable regulations, laws, decisions or enforcement actions could cause us to incur substantial costs, expose us to unanticipated civil and criminalliability or penalties (including substantial monetary fines), diminish the demand for, or availability of, our products and services, increase our cost of doing business,require us to change our business practices in a manner materially adverse to our business, damage our reputation, impede our growth, or otherwise have a materialadverse effect on our operations.We are subject to extensive and changing laws and government regulations across our business.Our business is affected by laws and regulations across multiple jurisdictions that affect the industries in which we operate, and their scope has increasedsignificantly in recent years. We are subject to a variety of regulations, including those relating to game operations, game ratings, e-commerce, social networking,internet applications or content services, digital platforms, marketing, advertising, privacy, personal information, data use, data transfer, data processing, datalocalization, data storage, data retention and data protection, live-streaming services, antitrust or competition laws, labor laws, national language requirements,intellectual property, virtual items, loot boxes, national security, content restrictions, sale of regulated or prohibited items, protection of minors, consumer protection,pricing, product safety and product liability, prevention of money laundering and financing criminal activity and terrorism, anti-bribery and anti-corruption regulation,economic or other trade prohibitions or sanctions, electronic contracts and other communications, digital financial services regulation, electronic payment servicesregulation and currency control regulation. Because the industries in which we operate are relatively new in our markets, especially the e-commerce and digitalfinancial services businesses, the relevant laws and regulations, as well as their interpretations, are often unclear and evolving. This can make it difficult to knowwhich licenses and approvals are necessary, or the processes for obtaining them. For these same reasons, we also cannot be certain that we will be able to maintainthe licenses and approvals that we have previously obtained, or that once they expire, we will be able to renew them. We are also uncertain as to whether we will beable to obtain the licenses we apply for in a timely manner or at all. If we fail to obtain, maintain or renew any required licenses or approvals, comply with the licensingconditions or make any necessary filings, or are found to require licenses or approvals that we believed were not necessary or we were previously exempted fromobtaining, we may be subject to various penalties, such as loss of the revenue or assets that were generated through the unlicensed business activities, imposition offines, suspension or cancelation of the applicable license, written reprimands, termination of relevant businesses or offerings, criminal prosecution and thediscontinuation or restriction of our operations, or other disputes. Any such penalties or disputes may disrupt our business operations and materially and adverselyaffect our business, financial condition and results of operations.13Table of ContentsLaws and regulations vary from jurisdiction to jurisdiction and are often evolving, unclear or inconsistent with other applicable laws. At the same time,authorities may introduce protectionist measures or may observe regulatory developments in other jurisdictions and seek to implement similar measures, includingmeasures to bring their respective jurisdictions in line with international standards that may be more stringent or restrictive, thus potentially subjecting us to moreextensive regulation in each market. Future expansion in terms of our services and geographic coverage, including the expansion of our licensed or self-developedgames, e-commerce platform and digital financial services and products to other parts of the world, could subject us to additional regulatory requirements and otherrisks that may be costly or difficult to comply with. As the digital economy of our markets develop and new regulations and compliance requirements are introduced,there may be ambiguity regarding the applicability and scope of new and existing regulations and compliance requirements, which may in turn cause uncertainty toour business operations, user engagements and investor confidence. We may require more time than expected to adapt to these new requirements, and may facedelays during the implementation or transition period. Any failure to timely comply with such new requirements may disrupt our business operations, damage ourreputation, cause us to lose users or reduce user engagement. News or rumors about potential introductions of new regulations, restrictions or compliancerequirements may also result in significant uncertainties to our business operations and may negatively affect the market price of our ADSs.In addition, data protection, privacy, content, competition, and other laws and regulations may impose different obligations or be more restrictive in certain ofour markets or other parts of the world where we may expand our operations. For example, GDPR includes operational requirements for companies that receive orprocess personal data of residents of the European Union. There are a number of recently enacted data protection laws as well as legislative and regulatory proposalsin various jurisdictions that could impose new obligations or limitations in areas affecting our business. There are also jurisdictions that are considering or havepassed legislation implementing data protection requirements or requiring local storage and processing of data or similar requirements. We may be required toimplement different operating practices and protocols depending on the requirements of each local market, which may be costly, and increase the complexity ofdelivery of our content, products and services. Any antitrust or competition related lawsuit, regulatory investigations, or administrative proceedings against us couldrequire us to terminate or change some of our business practices, or result in us being subject to regulatory actions.Regulators may regularly re-examine and increase legislation, regulation and enforcement of compliance obligations, which may require us or our businesspartners to revise or expand compliance programs, including the procedures we use to verify the identity of our users and to monitor the transactions on ourplatforms. Such new legislation, government policies or compliance requirements may also make it more burdensome for us to operate our businesses, expand ourofferings and for our users to use our services and products, which could potentially discourage users from using our services and products.The provision of financial services such as mobile wallet services, payment processing, cross border e-commerce transactions, consumer loan products, andbanking services and products are typically more regulated and subject to a broad range of complex laws and regulations that are rapidly changing. The monetary,commercial or equivalent authorities in the markets in which we operate could impose new or additional licensing requirements, capital commitments, governancestandards, reporting obligations or other regulatory requirements, requiring us to devote substantial operational and financial resources to comply with suchrequirements.We may fail to compete effectively.We face competition in each of our business lines and the failure to compete effectively in any of them could materially and adversely affect our business,financial condition and results of operations.Our digital entertainment business competes globally on the basis of a number of factors, including user base, game portfolio, quality of user experience,brand awareness and reputation, relationships with game developers, monetization strategies and access to distribution and payment channels. Our competitors forgame publishing include companies with a presence in just one or several markets, as well as companies offering global publishing platforms. Our competitors forgame development include global developers, who may have more experience, better reputation and more data obtained from developing games that target the sameuser pool. Outside of Southeast Asia and Taiwan, we have a limited operating history, and may be unsuccessful in monetizing or in continuing to attract and retainusers for our games. Our competitors may capitalize on their significant financial, technical or know-how resources to develop, distribute and operate mobile, consoleand PC online games. Some developers may choose to distribute games themselves through other channels such as the iOS App Store, the Google Play Store, Steam,or through consoles which may compete with games distributed and developed by us. In addition, we face competition from other games, platforms and entertainmentformats for the time, attention and entertainment spending of our online game players. If other leisure time activities are perceived by our players to offer greatervariety, affordability, interactivity and overall enjoyment, our digital entertainment business may be materially and adversely affected.14Table of ContentsOur e-commerce business faces competition from regional players that operate across several markets, and from single-market players. Global e-commercecompanies are also making efforts to enter into our markets and may further expand their footprints in such markets. Such competitors may have longer operatinghistory and greater access to financial, technological and marketing resources than we do. We compete to attract, engage and retain buyers based on the variety andvalue of products and services listed on our marketplaces, overall user experience and convenience, online communication tools, social features, integration withmobile and networking applications and tools, mobile applications and availability of payment settlement and logistics services. We also compete to attract and retainsellers based on the number and the engagement of buyers, the effectiveness and value of the marketing services we offer, commission rates and the usefulness of theservices we provide including data and analytics for potential buyer targeting, cloud computing services and the availability of support services including paymentsettlement, fulfillment and logistics services. As e-commerce is relatively new in our markets, competition for market share is particularly intense. Given the scalabilityof the e-commerce model, within each market, a market leader may be able to achieve the scale and network effect that make it very difficult for other market players tocompete effectively. Our competitors may consolidate or be acquired by other competitors, allowing them to obtain greater market share, gain access to greaterresources and gain real advantages over us.Our digital financial services business faces competition from existing online and offline payment methods, including, among others, other mobile walletservices and other digital financial service providers. We expect competition to intensify as existing and new competitors introduce new services or enhance existingservices. Some of our competitors may have more experience, greater financial resources or larger bases of customers than we have. In addition, certain competitorsmay have longstanding relationships with certain merchants to accept the payment services they offer, which may make it difficult or costly for us to establishpartnerships with these merchants. New entrants tied to established brands may engender greater user confidence in the safety and efficacy of their services, alongwith greater liquidity. We may also face pricing pressures and other forms of competition from competitors. Some potential competitors may charge lower commissionsto merchants or subsidize users through other services they offer. Such competition may result in the need for us to alter the pricing we offer which could reduce ourgross profit and negatively affect our business, financial condition and results of operations.As we continue to expand our business within our existing markets and globally, we may offer new products and services, develop new or enhance thefeatures and functionality of our platforms, that may lead to increased or additional competition. We may need to compete with existing service providers who havemore experience and infrastructure than us. We may also face potential protectionist policies, political measures or regulatory challenges that are more supportive oflocal players in such markets, which may among other things, hinder our ability to compete effectively in such markets.Existing or future investments or acquisitions may not be successful.In addition to organic growth, we have invested in or acquired, and may take advantage of opportunities to invest in or acquire, additional businesses,developers and studios, services, assets or technologies from time to time. For example, we acquired Composite Capital Management, a Hong Kong-licensed globalinvestment management firm in the first quarter of 2021. Concurrent with this acquisition, we established Sea Capital to manage our overall investment efforts. We mayfail to select appropriate investment or acquisition targets, or we may not be able to negotiate optimal arrangements, including arrangements to finance suchinvestments or acquisitions. Investments and acquisitions entail uncertainties and risks, such as:15Table of Contents●we may fail to successfully achieve the intended objectives;●our investment or acquisitions may be viewed negatively by customers, financial markets or investors;●the costs of identifying and consummating these transactions may be significant;●acquisitions and the subsequent integration of new assets and businesses into our own could require significant management attention and could divertresources from our existing businesses;●we may have difficulty in transitioning and integrating the business, technologies, products, personnel or operations of the acquired businesses;●we may face unforeseen operating challenges;●our relationships with existing employees, customers and business partners of our group, or those of the target, may be impaired;●we may assume pre-existing contractual relationships of an acquired company that we would not have otherwise entered into, the termination ormodification of which may be costly or disruptive to our business;●an acquisition may result in a delay or reduction of customer purchases for both us and the company acquired due to customer uncertainty aboutcontinuity and effectiveness of service from either company;●we may face challenges associated with managing additional and/or geographically remote businesses;●investments and acquisitions could result in the use of substantial amounts of cash or significant capital contributions, which could limit other potentialuses for our cash;●investments and acquisitions could result in increased leverage, dilutive issuances of equity securities, adverse tax consequences, goodwill impairmentcharges or write-offs, amortization expenses for other intangible assets;●if we incur debt to fund any investments or acquisitions, such debt may subject us to material restrictions on our ability to conduct our business,including financial maintenance covenants;●we may need to issue new shares as acquisition consideration or to raise additional capital to fund the acquisition consideration, which may dilute ourexisting investors’ interest in us;●we may assume unknown material liabilities of acquired companies, or may be exposed to claims and disputes by shareholders and third parties,including intellectual property claims and disputes;●we may be unsuccessful in accurately projecting revenue, cost or other metrics of the invested or acquired entity in the due diligence process;●the invested or acquired assets or businesses may not generate the financial results we expect; and●the market value of our investments or acquisitions may fluctuate, particularly in volatile markets.These factors could adversely affect our financial results. In addition, we may fail to obtain any required approvals and licenses from relevant governmentauthorities. We may become subject to new governmental regulations in connection with our investments and acquisitions, which could result in increased costs andnew strategic risks. Any of these risks may materially and adversely affect our business, financial condition and results of operations.16Table of ContentsOur results of operations are subject to fluctuations.We are subject to seasonality and other fluctuations in our business. Our revenue is also largely affected by our promotional and marketing activities,including the timing of promotions, and our revenue may fluctuate due to such activities. In addition, our rapid growth has masked certain fluctuations that otherwisemay have been apparent in our results of operations. When our growth stabilizes, the seasonality in our business may become more pronounced. Rapid growth mayalso put strain on our existing resources due to increased capital expenditures and operating expenses related to our expansion, including sales and marketingexpenses, local hiring and procurement of infrastructure. See “—Business and Operational Related Risks—Risks Applicable Across Multiple Businesses—We maynot succeed in managing or expanding our business across the expansive and diverse markets in which we operate.”Our revenue and other operating results may vary significantly from quarter to quarter due to a variety of factors, many of which are outside our control.Factors that may contribute to the fluctuations of our quarterly results include (i) fluctuations in overall consumer demand for mobile and PC online games duringcertain months and holidays; (ii) timing of game releases and monetization rates of new games and game enhancements in different markets; (iii) increases in sales andmarketing and other operating expenses that we may incur to grow and expand our businesses; (iv) timing of promotional and marketing activities as described above;and (v) macro-economic conditions and their effect on discretionary consumer spending, discretionary consumer income or consumer purchasing habits. Changes incash flow generated from our games may not always match our revenue trends due to our revenue recognition policy, under which proceeds from our sales of in-gamevirtual items are booked as deferred revenue and recognized over a period of time based on estimates of service periods pursuant to applicable accounting rules.The convertible senior notes we issued in 2018, or the 2023 convertible notes, the convertible senior notes we issued in 2019, or the 2024 convertible notes,and the convertible senior notes we issued in 2020, or the 2025 convertible notes, are each subject to cash conversion accounting. The liability component of the 2023convertible notes, the 2024 convertible notes and the 2025 convertible notes was initially measured at fair value with the residual value recorded as additional paid-incapital within equity. The liability component would require a greater amount of non-cash interest expense to accrete the carrying value back to the face value over theterm of the notes. Subsequent changes in the fair value upon the extinguishment of our 2023, 2024 and 2025 convertible notes and coupon interest expenses couldaffect our financial results. Because of these and other factors as well as the limited operating history of some of our businesses, it is difficult for us to accuratelyidentify recurring seasonal trends in our business. Accordingly, you should not rely on quarter-to-quarter comparisons of our results of operations as an indication ofour future performance.We have a limited operating history for some of our businesses.We have a limited operating history upon which to evaluate the viability and sustainability of our businesses, in particular our e-commerce and digitalfinancial services businesses. Our history of operating all three of our businesses together is relatively short, as our SeaMoney and Shopee platforms were launchedin April 2014 and June 2015, respectively. Our historical results may not be indicative of our future performance and you should consider our future prospects in lightof the risks and uncertainties of early-stage companies operating in fast evolving high-tech industries in certain markets.Our businesses involve third parties over whose actions we have no control.Each of our digital entertainment, e-commerce and digital financial services businesses requires the participation of third parties such as game developers, sellersand merchants who own the content and services offered through our platforms. We rely on a number of third-party channels to provide content and services to ourusers, as well as performing other functions of our platform. For example, we primarily rely on third-party application distribution channels, such as the iOS App Storeand the Google Play Store, to allow users to download and access our applications and games. If our third-party distribution channels voluntarily or involuntarilysuspend their services to us and we are unable to arrange for alternative measures in a timely manner or at all, our users will have difficulties accessing ourapplications and games. Consequently, we will lose users temporarily or permanently, and our financial results could be materially and adversely affected.17Table of ContentsWe may not be able to control the actions of these or other third parties and thus are subject to various risks associated with working with or relying on thirdparties in our businesses, including:●risks relating to third-party sellers on our platform and merchant partners, including deficiencies in the quality of products, misrepresentation ofproducts, listing of restricted or prohibited products, and potential intellectual property issues (see “—We may be subject to intellectual property-relatedrisks”);●risks relating to third-party payment service providers we depend on to provide users with various payment options or mobile wallet top-up options,such as iOS App Store and the Google Play Store, payment on delivery, bank transfers, direct carrier billing, credit cards, debit cards, telecommunicationcard top-up and payment through other third-party payment services;●risks relating to services by third-party logistics service providers;●risks relating to users’ personal data that is received or used by third parties in connection with our services, such as when sellers or third-party logisticsproviders receive user information in connection with order fulfillment;●risks relating to users of our services or platforms who engage in fraud or other conduct that violates our terms of service, other policies, or the law;●risks relating to third-party data center providers and cloud services for the storing of data from our users and operations. We do not control theoperation of these facilities and rely on contracts to employ their use. The owners of the data center facilities have no obligation to renew theiragreements with us on commercially reasonable terms, or at all. If we are unable to renew these agreements on commercially reasonable terms, we may berequired to transfer our servers and other infrastructure to new data center facilities, or change to other service providers, and we may incur significantcosts and possible lengthy service interruptions in connection with doing so; and●damage to our reputation if third parties on our platforms or our other business partners do not properly perform their functions and negatively affectour users’ experience with our platforms.Although we take efforts to screen the content available on our platforms, we may not detect every improper or fraudulent third-party action. In some of ourmarkets, we may be liable under local law if users commit fraud or cause buyers purchasing products through our platform to incur losses. While we have agreementswith each of these parties that obligate them to carry out their respective dealings in a lawful and professional manner, any legal protection we may have could beinsufficient to compensate us for our losses or may not repair the damage to our reputation.If any of our third-party service providers and channel providers delivers unsatisfactory service, engages in fraudulent or prohibited actions, or is unable orrefuses to continue to provide its services to us and our users for any reason, our business, financial condition and results of operations may be materially andadversely affected.Fluctuations in foreign currency exchange rates may adversely affect our operational and financial results, which we report in U.S. dollars.We operate in multiple markets, which exposes us to the effects of fluctuations in currency exchange rates as we report our financials and key operationalmetrics in U.S. dollars. We earn revenue denominated in Indonesian rupiah, New Taiwan dollars, Vietnamese dong, Thai baht, Philippine pesos, Malaysian ringgit,Singapore dollars, Brazilian real, U.S. dollars, Indian rupee and Mexican pesos, among other currencies. We generally pay license fees to game developers in U.S.dollars, and incur expenses for employee compensation and other operating expenses in the local currencies in the markets in which we operate. From time to time, wemay pay acquisition considerations in U.S. dollars. We do not rely on any single currency as we earn revenue in different local currencies across our markets and keepa significant cash position in U.S. dollars. However, fluctuations in the exchange rates among the various currencies that we use could cause fluctuations in ouroperational and financial results. Our expenses may become higher and our revenue and operating metrics may become lower than would be the case if exchange rateswere stable or if we were operating and reporting in one currency. Movements in foreign currency exchange rates may have a material adverse effect on our results ofoperations, which may cause our financial and operational metrics reported in U.S. dollars to be not fully representative of our underlying business performance. Asignificant amount of our revenue and some of our operating metrics such as gross merchandise value are denominated in certain local currencies that have beensubject to significant volatility in the past. Because fluctuations in the value of these local currencies are not necessarily correlated, our results of operations in anyperiod may be adversely affected by such volatility. See “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Major Factors Affecting OurResults of Operations” and “Item 11. Quantitative and Qualitative Disclosures About Market Risk.”18Table of ContentsWe may enter into derivatives transactions and incur relevant costs from time to time to manage our exposure to exchange rate risk. Such derivativestransactions while intended to be non-speculative, are designed to protect us against increases or decreases in exchange rates, but not both. If we have entered intoderivatives transactions to protect against, for example, decreases in the value of a local currency and such local currency instead increases in value, we may incurfinancial losses. Such losses could materially and adversely affect our financial condition and results of operations.We may be subject to intellectual property-related risks.We rely on a wide portfolio of intellectual properties to operate our businesses. We may not be able to effectively protect these intellectual properties againstinfringement, or efforts to safeguard our intellectual properties may be costly.We rely on a combination of trademark, fair trade practice, copyright and trade secret protection laws, as well as confidentiality procedures and contractualprovisions, to protect our intellectual properties. We also enter into confidentiality agreements with our employees and any third parties who may access ourproprietary information, and we rigorously control access to our proprietary technology and information. Our intellectual property protection measures may not besufficient, and confidentiality agreements may be breached by counterparties. There may not be adequate remedies available to us for any such infringement orbreach. For example, in the event any third-party game developer, publisher or hacking group infringes the copyright of our self-developed game, our users may loseinterest in our games. In addition, policing any unauthorized use of our intellectual properties is difficult, time-consuming and costly, and the steps we take may beinadequate to prevent the misappropriation of our intellectual properties. In the event that we resort to litigation to enforce our intellectual property rights, suchlitigation could result in substantial costs and a diversion of our managerial and financial resources. We may not prevail in such litigation. In addition, our tradesecrets may be leaked or otherwise become available to, or be independently discovered by, our competitors. Any failure in protecting or enforcing our intellectualproperty rights could have a material adverse effect on our business, financial condition and results of operations.From time to time we receive notices from third parties or are named in lawsuits by third parties alleging infringement of their proprietary intellectual propertyrights or in connection with claims relating to our content, products or marketing activities. For example, with respect to our e-commerce business, we receivecomplaints alleging that items offered on or sold through our Shopee platform infringe third-party copyrights, trademarks and patents or other intellectual propertyrights, or contain obscene, defamatory or libelous content. Although we have adopted measures to reduce infringements or offense by product listings on our Shopeeplatform before they appear on the marketplace, these efforts may not always be successful. In April 2019, April 2020 and January 2021, the Office of the U.S. TradeRepresentative, or USTR, published its annual Out-of-Cycle Review of Notorious Markets, which identified the Shopee platform in several of our markets as“notorious markets.” The USTR may continue to identify those Shopee markets as notorious markets, and the USTR may identify other Shopee markets as notoriousmarkets in the future. In December 2020, the European Commission placed Shopee on its Counterfeit and Piracy Watch List. Any public perception that counterfeit,pirated, or otherwise inappropriate or illegal items are commonplace on Shopee, even if factually incorrect, or perceived delays in our removal of these items coulddamage our reputation and result in regulatory action against us and diminish the value of our brand name. We may be subject to allegations of civil or criminalliability for alleged intellectual property infringement, including based on allegedly unlawful activities carried out by third parties through our platforms. We may alsobe subject to fines or sanctions by local authorities for infringing products or improper contents offered on our marketplace, including requiring the removal of theinfringing products or a temporary or permanent block of our platform.We may implement further measures to protect users and ourselves against potential intellectual property liabilities, and these measures could cost ussubstantial additional resources or require us to discontinue certain service offerings. In addition, these measures may reduce the attractiveness of our platforms tousers. For example, a seller whose listings are removed or suspended by us, regardless of our compliance with the applicable laws, rules and regulations, may disputeour actions and commence action against us for damages based on breach of contract or other causes of action or make public complaints or allegations. Any costsincurred as a result of such liability or asserted liability could also harm our business.19Table of ContentsAs the number of interactive games increases and the features and content of these games continue to overlap, software developers and distributors haveincreasingly become subject to infringement claims. Some of our game content is highly realistic and features materials that are based on real‑world objects or people,which may also be the subject of claims of infringement, including right of publicity, trademark and unfair competition claims. Despite any steps taken by us to avoidknowingly violating the intellectual property rights of others, third parties may still claim that content we develop or license from third parties infringes theirintellectual property rights.Any such claims, whether or not meritorious, that we need to defend or litigation we take to enforce our intellectual property rights may be time-consuming,distracting to management and costly, and we may not prevail in any such litigation. We may also be forced to stop distributing, cease using or redesign the relevantcontent or product, obtain a license from the claimant, which, if available at all, may not be available on commercially favorable terms.We may be liable for security breaches and attacks against our or our third-party partners’ platforms and network, particularly with regard to confidential userinformation and personal or other data or any other privacy or data protection compliance issue, and our platforms and games may contain unforeseen “bugs”or errors.Our business stores, generates and processes a large amount of data, including personal data and payment information from users, and any failure to preventor mitigate security breaches and the improper access, use or disclosure of such data could impact our operations negatively and harm our reputation. We alsomaintain certain other proprietary and confidential data relating to our business and personal data of our consumers and personnel. Although we have employedsignificant resources to develop and implement security measures aimed at preventing breaches, our cybersecurity and data protection measures have not and maynot detect or prevent all attempts to compromise our systems, including distributed denial-of-service attacks, viruses, malicious software, physical or electronic break-ins, phishing attacks, data leaks, social engineering, and security breaches or other attacks and similar disruptions that may jeopardize the security of informationstored in and transmitted by our systems or that we otherwise maintain. Any security breach, including personal data breaches or incidents, including cybersecurityincidents, could result in unauthorized access to our systems or a user’s system, misappropriation of our or a user’s information or data, loss, corruption or alterationof such data, financial loss, deletion or modification of user information, damage to our systems or those of our users, or a denial-of-service or other interruption toour business operations. Any such incidents could impact our operations and could expose us to claims, litigation, regulatory or other governmental investigations,administrative fines, and potential liability, as well as remediation costs and increased cybersecurity and/or data protection costs. We have in the past been and arelikely again in the future to be subject to these types of attacks and security breaches. As techniques used to obtain unauthorized access to or otherwise breach orsabotage systems change frequently, we may be unable to anticipate or implement adequate measures to protect against these security breaches until they have beenlaunched against us, our platforms or services, our users or our third-party service providers. We may not have the resources, technical sophistication, or ability toanticipate or prevent rapidly evolving or sophisticated types of cyber-attacks or other types of security breaches. In addition, our confidential or proprietaryinformation or our users’ personal data or payment information may, in some instances, be stored or processed by certain third-party partners, which poses similarrisks. If an actual or perceived breach of our or our third-party partners’ security occurs, public perception of the effectiveness of our security measures and brandcould be harmed, demand for our platforms or services may be reduced, our operations may be disrupted, we may incur significant legal liabilities, financial loss, andremediation costs, and our business could be materially and adversely affected. Any compromise of our or our third-party partners’ security or data could have aseries of significant consequences, ranging from violation of applicable security, privacy or data protection, consumer and other laws, regulatory or othergovernmental investigations, enforcement actions, to other legal and financial exposure, including potential contractual liability, litigation risk or user loss.20Table of ContentsOur platforms services, applications, websites and games have in the past contained and may in the future contain errors or “bugs” that are not detecteduntil after the applications, products or services are published or released. Any such errors or a significant unavailability of our platforms, services or games or anybreach of users’ data protection rights due to these errors or “bugs” could affect the overall user experience, which could cause users to reduce their time on orinterest in our platforms, services or games, or not recommend our content and services to others. Such errors could also result in non-compliance with applicablelaws, cause financial loss, or create legal liability for us. Resolving such errors could also disrupt our operations, cause us to divert resources from other matters, ormaterially harm our business, financial condition and results of operations. In addition, “cheating” programs or other unauthorized software tools and modificationsthat enable players to cheat in games harm the experience of players who play fairly and could negatively impact the volume of purchases of in-game items. Also,vulnerabilities in the design of our products, services and of the platforms on which they run could be discovered after their release and exploited by malicious actorsbefore they are remedied. This may lead to loss of revenues or increased cost of developing technological measures to respond to these, either of which couldnegatively affect our business, financial condition and results of operations.We collect, process, transmit, and store personal information in connection with the operation of our businesses and are subject to complex and evolvinginternational laws and regulations regarding privacy and data protection.Our businesses are subject to a number of data protection laws and requirements in the markets in which we operate and where our users, merchant partners,customers and other participants are located. As we further expand our operations internationally, we will be subject to additional data protection laws andrequirements. The privacy and data protection related laws, rules and regulations of jurisdictions we expand to may be more comprehensive, restrictive or otherwisedifferent as compared to such laws, rules and regulations in our traditional markets. In addition, such laws, rules and regulations, including any penalties, may differ orbe inconsistent from jurisdiction to jurisdiction. Complying with privacy and data protection related laws, rules and regulations for an increasing number ofjurisdictions could require significant resources and costs. Such laws, rules and regulations may also restrict the transfer of data across jurisdictions, require datalocalization, require us to obtain user consent for the use and collection of their data, to delete or limit the processing of their data, and require us not to sell or engagein marketing data with respect to certain users, among other things, which may impose additional and substantial operational, administrative and compliance burdenson us, and may also restrict our operations and expansions in new markets. The costs to comply with, or our actual or perceived failure to comply with, new orchanging laws, rules and regulations regarding privacy and data protection, privacy and data protection laws, rules and regulations in new markets, and/or contractualobligations related to privacy and data protection may adversely affect our business, financial condition and results of operation. We may also face potentiallysignificant fines, reputational loss and customer loss, and may be subject to proceedings or actions against us by governmental entities, consumers or others relatingto privacy and data protection.Risks Related to Our Digital Entertainment BusinessWe derive a significant portion of digital entertainment revenue and gross profit from a limited number of online games.In 2018, 2019 and 2020, our digital entertainment business contributed 55.9%, 52.2% and 46.1% of our total revenue, respectively. In addition, our gross profitin 2018, 2019 and 2020 was primarily attributable to the positive impact of our digital entertainment business. Although our other businesses are growing and mayincreasingly contribute to our total revenue in the future, we expect that our digital entertainment business will continue to contribute significantly to our revenue andgross profit.Among our online games, we substantially depend on a small number of popular games, including our first fully self-developed game, Free Fire, a globalpopular battle royale type of mobile game, which was launched in December 2017. In 2020, our top five games, comprising Free Fire and games licensed to us by third-party game developers, contributed 95.6% of our digital entertainment revenue, among which Free Fire contributed a significant portion. If we are unable to identify,source, develop and launch new games titles that gain widespread popularity and generate significant revenue, our revenue and revenue growth may continue todepend on the success of just a few game titles. If there are any negative developments or occurrences to any of our key revenue-earning games, such as decline inpopularity, content quality issues, competing products, content restrictions, regulatory or legal changes that affect our ability to monetize our games, reductions inconsumer spending and engagement levels, delay or failure in producing new engaging content, or real or perceived security risks, our revenues could experiencematerial decline or slower growth. We may also select and invest significant financial and human resources in games that later prove unsuccessful. There may also beunforeseen delays in the launch of new games. If we are unable to source or launch new popular games in a timely manner, our game players may seek entertainmentelsewhere. As the gross margin of self-developed game content tends to be higher than that of content licensed from third parties, any fluctuations in the mix of ourrevenue generated from self-developed game content and licensed game content may also affect our profitability.21Table of ContentsWe have a limited track record in game development and global game distribution.While Free Fire has so far been well-received, we are still relatively new to game development. We may be unable to continue to identify market opportunitiesand develop new games, and subsequent self-developed games may not always have the same or comparable levels of success. Development of new games requiresconsiderable resources, including research, testing, marketing, infrastructure and staff expenses. If the increased costs do not translate to higher revenues and costefficiencies, our business could be negatively affected.Free Fire is currently available in several markets, including our region, other parts of Asia, Brazil, Mexico, India, North America and other growth markets likeRussia and the Middle East. Any self-developed games we may develop in the future may also be offered in multiple jurisdictions. The expansion of our digitalentertainment business into new markets where we have previously had little or no business presence, including through our self-developed games, may subject us toadditional regulatory and compliance requirements and other new risks. We may have to adopt differing methods and processes to adhere to each jurisdiction’s lawsand regulations, which could result in undue delays in launching such self-developed games or increased costs.We rely on third-party game developers for some of the content of our digital entertainment platform.We license the majority of our online games from third-party game developers. The term of our game license agreements with game developers typicallyranges from two to seven years, renewable upon both parties’ consent. However, we may not be able to procure new games or renew existing licenses on termsacceptable to us. Our game developer partners may terminate our agreements prior to their expiration if we are not in compliance with the relevant terms or conditionsand we fail to remedy such non-compliance in time, or they may refuse to renew the agreements. Any failure on our part to effectively localize, operate, market ormonetize their games, safeguard their intellectual properties, or otherwise perform our obligations under the license agreements may cause substantial harm to ourrelationships with game developers, who may then choose other game operators to distribute their games.Currently, some of our most popular games, including League of Legends, Arena of Valor, and Call of Duty: Mobile, are owned or developed by TencentHoldings Limited and its affiliates, or Tencent, one of our major shareholders. In November 2018, we obtained a right of first refusal from Tencent to publish its mobileand PC games in Indonesia, Taiwan, Thailand, the Philippines, Malaysia and Singapore, subject to certain terms and conditions. Although we have already launchedcertain games under such right of first refusal arrangement, there is no guarantee that we will publish more games under such right of first refusal arrangement onterms satisfactory to us or at all, or that any games published under such arrangement will yield a positive result.In certain circumstances, the actions of our third-party game developers which are beyond our control could materially and adversely affect the success ofour online games, causing our online games revenue to fluctuate or even be lower than expected. These actions by game developers could include software updatesresulting in adverse changes in gameplay that are poorly received by our users, game or update releases with insufficient content to attract users or maintain the levelof their engagement, or delays in any release of anticipated games in our pipeline or game updates.Our games are subject to scrutiny regarding the appropriateness of their content.Our games are subject to reviews, ratings or other restrictions on content, advertisement or distribution mandated by laws in some of our markets or ratingsby third-party application distribution channels. For example, in Vietnam, online game publishers are required to obtain certain approval on game content from thegovernment. In Thailand, applications to publish online games need to be reviewed and approved by the Thailand Film and Video Censorship Committee. Apple usesits own proprietary app rating system and Google Play uses the International Age Rating Coalition (IARC) rating system. If we are unable to obtain the ratings wehave targeted for our games, it could delay launch or upgrade of our games. Legislations or regulations may be introduced in our markets to impose age restrictions orto allow government censorship and establish a system for protecting users from the influence of graphic violence or other objectionable elements contained invarious types of games. Some of our games may be subject to stricter regulations caused by government actions or legal proceedings, including those imposedagainst other developers’ games which are in the same genre as ours. We may be required to modify our game content or features or alter our marketing ormonetization strategies to comply with new governmental regulations or ratings assigned to our current or future games, which could delay or prohibit the release ofnew games or upgrades and reduce the existing and potential scope of our user base. We may also be required to modify or remove certain game features to react tocourt decisions such as injunctions or complaints from activist groups or organizations. If we are required to do so, it could adversely affect our monetization, userbase and financial results. If any of our key games, including Free Fire, is banned or temporarily suspended by any government, court or distribution channels, ourbusiness, financial condition and results of operations may be materially and adversely affected.22Table of ContentsIn May 2019, the WHO adopted a new edition of its International Classification of Diseases, which lists gaming addiction as a disorder and will come intoeffect in January 2022. While the effects of gaming and whether gaming addiction is a disorder continues to be discussed and researched by health officials andothers, the WHO and other governments may continue to take measures against gaming addiction, such as imposing gaming curfews or spending limits for minorsand establishing treatment programs aimed at addressing gaming addiction.There are increasing discussions in many jurisdictions globally regarding whether certain game mechanics, such as loot boxes, should be subject to a higherlevel or different type of regulation than other game genres or mechanics to protect consumers. Some jurisdictions have seen enforcement or actions initiated byactivist groups or organizations to protect consumers, in particular minors and other susceptible persons. For example, in February 2021, the National Association ofCenters for the Defense of the Rights of Children and Adolescents in Brazil, or ANCED Brazil, a youth rights group in Brazil, filed lawsuits against a number ofelectronic games companies, including our gaming entity in Brazil, in a court dedicated to resolving matters concerning children and adolescents regarding allegedloot box mechanisms in the games. In addition, to the extent Apple, Google, or any of our other platform providers or game distribution channels prohibit the use ofloot boxes or similar mechanism in games, we may need to adjust our game content or monetization strategy in order to continue distribution on such platforms orchannels, which may cause a decline in the revenues generated from these games and require us to incur additional costs. If new or amended legislations orregulations, which may vary significantly across jurisdictions and which we may be required to comply with, require certain game mechanics of our games to bemodified or removed, such requirements would increase the costs of operating our games, impact player engagement and monetization, or may otherwise harm ourbusiness performance. In addition, the increased attention focused on potential liability issues as a result of any lawsuits and legislative proposals could harm ourreputation or otherwise impact the growth of our business.As debate in the industry continues, we cannot predict the likelihood, timing, scope or terms of any similar regulations in our markets, or the extent to whichimplementation or public reactions of such regulations (including lawsuits brought against game companies by alleged victims of gaming addiction or their families)may adversely affect our reputation and business. We may need to adjust our game content or monetization strategy to respond to local regulatory or otherrequirements. Moreover, public dialogue concerning online games may have an adverse impact on our reputation and users’ willingness to play our games. Any costsincurred as a result of this potential liability could harm our business, financial condition and results of operations.Risks Related to Our E-Commerce BusinessWe face uncertainties relating to the growth and profitability of the e-commerce industry in our markets and we may face challenges and uncertainties inimplementing our e-commerce strategy.While e-commerce adoption continues to grow at an accelerated pace, our future results of operations will depend on numerous factors affecting thedevelopment of the e-commerce retail industry in our markets, which may be beyond our control. These factors include:●the growth rate of internet, broadband, personal computer and smartphone penetration and usage in our markets;23Table of Contents●the trust and confidence level of e-commerce consumers, as well as changes in customer demographics and consumer tastes and preferences;●the selection, pricing and popularity of products that online sellers offer;●whether alternative retail channels or business models that better address the needs of consumers emerge, including multi-category service e-commerceplatforms;●the differing and quickly changing laws and regulations applicable to e-commerce businesses in our markets, including any required licenses or permits;and●the development of logistics (especially last-mile delivery and warehousing infrastructure), payment and other ancillary services associated with e-commerce, including any write-offs in connection with delivery expenses incurred when sellers provide us with inaccurate pick-up or deliveryinformation.Our e-commerce business is currently concentrated, with our top two markets based on total orders and GMV, in each case, accounting for a majority of ourtotal orders and GMV. If we were to experience a material decline in these top markets or we are prohibited from operating or subject to restrictions limiting ouroperations in such markets, it could materially and adversely affect our financial results and the prospects and profitability of our e-commerce business.As we continue to develop our last-mile delivery and warehousing capacity to build up our fulfilment capabilities, as well as expand the categories of serviceswe offer through our e-commerce platform such as food delivery, we expect these developments to require significant capital expenditures. If we fail to accuratelypredict demand for such services, or accurately adjust our operations in response to evolving business needs and economic and regulatory conditions, we may sufferincreased costs or impairment charges. Any such adjustments may also not achieve their desired or expected results. The development of our fulfillment capabilitiesmay also become increasingly complex and challenging to operate as it expands, and we may not be able to acquire land use rights, set up warehouses, or leasesuitable facilities to directly handle delivery of products to our customers, on commercially acceptable terms or at all.We may suffer losses relating to the products we sell on Shopee.In connection with our direct sales and certain value-added services on our Shopee platform, we purchase products from manufacturers and third parties andsubsequently sell such products on our Shopee platform. This subjects us to risks relating to such products and to managing our inventory turnover. We depend onour forecasts of demand and popularity for a variety of products to make decisions regarding product purchases. Our customers may not order products at the levelsexpected by us due to our failure to forecast accurately, unfavorable market conditions or change in consumer trends. In addition, if the supply of products frommanufacturers and third parties deteriorates, we may be unable to obtain the products that buyers want to purchase. Manufacturers and third parties may discontinueselling products due to factors that may or may not be within our control. Our inability to secure timely and sufficient supplies of products would negatively affectinventory levels and our platform popularity.We do not always have the right to return unsold items to sellers or suppliers. In addition, in order to secure more favorable commercial terms, we may needto purchase a higher volume of products. If we fail to efficiently manage our inventory, we may suffer losses, including losses due to inventory write-downs relating todecrease in estimated market value or damaged or obsolete inventory. In addition, if we are unable to sell products or if we deem it necessary to lower sale prices inorder to attract buyers or reduce inventory level, our profitability will be negatively affected.We may also be subject to legal claims in relation to such products or the conduct of our sellers from time to time. We cannot guarantee that all products wesell are of the quality expected by our buyers. If buyers have any disputes with us regarding the products we sell, including disputes relating to product quality orauthenticity, we may suffer reputational loss or liability and may need to incur additional costs to address such disputes, which in turn may adversely affect ourbusiness and results of operations.24Table of ContentsRisks Related to Our Digital Financial Services BusinessWe face uncertainties and risks relating to our digital financial services business.Although there are trends of uptick of digital financial services and products across the globe, and countries such as Singapore are taking steps towardbeing a “cashless society,” there is no certainty that this will continue or will result in widespread market acceptance of our digital financial services and productsacross all or any of the markets in which we operate. We may be unable to achieve the required level of market acceptance in order for us to recoup the investmentcosts involved in developing and launching our digital financial services and products or to bear the associated risks involved in providing such services andproducts. Our ability to achieve or maintain market acceptance for our digital financial services and products are affected by a number of factors, such as thecommunity’s lack of trust in digital financial services and products being provided by a company that is not a traditional financial institution, entrenched preferencesin traditional payment methods, insufficient use cases for our digital payment services and lack of infrastructure support locally. Even if there is adequate acceptanceof our digital financial services and products, we continue to be subject to a quickly changing regulatory environment for such services and to the changing needsand demands of users, which may change for a multitude of reasons such as availability of alternative payment methods that are more popular or widely accepted.While we endeavor to consistently increase demand for our digital financial services and products by broadening and improving our use cases and product offerings,we cannot predict with certainty the reasons for the changes in user demands, and the consequential effects of such changes on our business.In addition to other relevant risk factors described herein, our mobile wallet business is subject to other risks including: (i) changes to rules or practicesapplicable to payment systems that link to our mobile wallet, (ii) increasing costs, including fees charged by banks to process transactions through our mobile wallet,and (iii) failure to manage user funds accurately or loss of user funds, whether due to employee fraud, security breaches, technical errors or otherwise. Other paymentcard schemes that link to our mobile wallet may impose special assessments for transactions that are executed through a mobile wallet and these fees couldsignificantly increase our costs.We are a relatively new entrant in the digital financial services industry and face intense competition with existing services providers and other new entrants.Our competitors may have greater experience in the financial services sector and greater resources than we have. In order to attract users, we may have to createdifferentiated product and services offerings. Our current or future digital financial products and services may not be successful or generate sufficient revenue tocover the costs and expenses of their launch and development. As our banking and consumer credit businesses grow, our business and financial results may alsobecome increasingly subject to credit cycle volatility and the risk of credit losses, including deterioration of the credit profile of borrowers.We could be held liable if our digital financial services and products are used for fraudulent, illegal or improper purposes.Despite measures we have taken and continue to take, our digital financial services and products remain susceptible to potentially illegal or improper uses,which could damage our reputation and subject us to liability. These may include the use of our payment services in connection with fraudulent sales of goods orservices, unauthorized purchases or transfers, software and other intellectual property piracy, money laundering, bank fraud and prohibited sales of restrictedproducts. Criminals are using increasingly sophisticated methods to engage in illegal activities such as counterfeiting and to gain unauthorized access to other users’accounts. We could be subject to fraud or related claims if confidential information obtained from our users is used for unauthorized purposes.Our risk management policies and procedures may not be fully effective in identifying, monitoring and managing these risks. We are unable to monitor ineach case the sources of funds from users of our digital financial services and products, or the ways in which they are used. An increase in fraudulent or unlawfultransactions or publicity regarding payment disputes could harm our reputation and reduce consumer confidence in our services. The use of our products andservices for illegitimate, fraudulent, unlawful or similar transactions can also expose us to governmental and regulatory sanctions, including U.S. anti-moneylaundering and economic sanctions violations.25Table of ContentsOur banking business may subject us to additional material business, operational, financial, legal and compliance requirements and risks.In December 2020, the Monetary Authority of Singapore, or MAS, announced that our wholly-owned subsidiary in Singapore has been selected for theaward of a digital full bank license. As of the date of this annual report, we have not been officially awarded such digital full bank license, and there is no guaranteethat MAS will grant us such license that it announced we were selected to receive. According to MAS’ announcement, we must meet all relevant prudentialrequirements and licensing pre-conditions before MAS grants us the digital full bank license, and MAS expects our digital bank in Singapore to commence operationsin 2022 upon obtaining the license. These requirements and pre-conditions may require us to be subject to additional business, operational, financial and legalrequirements, including those to which we may not be currently subject. If we are unable to meet such requirements and pre-conditions, MAS may not grant us thedigital full bank license. In addition, we expect to be required to meet the minimum paid-up capital requirement set by the MAS, eventually reaching S$1.5 billion(US$1.1 billion) once our digital bank is fully functioning.We have in the past made, and may in the future, make investments in, acquire or partner with other parties in making investments in or acquiring licensedfinancial institutions and financial services technologies and providers, including commercial banks. For example, we acquired a controlling interest in a localcommercial bank in Indonesia in 2020.Banking business, including digital banking business, is heavily regulated and subject to various laws, regulatory requirements and guidelines imposed bythe relevant regulators. Such laws, regulations and guidelines may impose rules and/or restrictions on the type of banking products and services we offer, eligibilitycriteria of our customers, related party transactions, market entry, risk management, corporate governance, capital and/or liquidity ratios, and tax and accountingpolicies, among other things. Local authorities may have the authority to inspect our operations and conduct periodic and/or ad hoc audits of our operations toassess our compliance with the relevant regulatory requirements and guidelines. They may also have the authority to impose fines, sanctions or order remediations.As digital banking evolves as an industry, applicable laws, regulations and guidelines may change or increase, and we may not be able to adapt to new or revisedlaws, regulations and guidelines in a timely manner or at all. We are a new player in the digital bank industry, and have limited experience operating digital banks. If wefail to comply with new laws, regulations or guidelines, or our strategies to develop and grow our digital bank business, including products and services, fail toachieve their intended effects, our business, financial condition and results of operations, as well as our reputation, could be materially and adversely affected.We face risks related to our lending and consumer credit businesses.As the amount of our loans increase and we further diversify our credit product offerings, we may require additional funds, explore alternative fundingmethods such as partnering with external funding providers, or explore other credit or lending businesses. If our capital is insufficient to meet the demand or, in thecase of our lending business, any applicable regulatory requirements, due to lack of internal resources or alternative funding options, it may affect our credit productor loan offering capabilities, lead to loss of users, borrowers or slower growth, and constrain our working capital.These services will also expose us to risks and liabilities, including credit risks relating to the borrowers who may be individuals or commercial customers,and counterparty risks in dealing with potential business partners. We rely on, among other things, the information and knowledge we gain from our existingbusinesses to build the strategy of our credit and loan products and assess the creditworthiness of potential borrowers. Our ability to assess creditworthiness may beimpaired if the strategies or policies we use to manage our credit risks do not achieve their desired effect, which could lead to, for instance, loans being issued to userswho may have higher default or delinquency risks. Even if our information collection, strategy and policy are all appropriate, other factors such as macro-economic orunexpected incidents may still affect our borrowers’ ability to repay. We aim to maintain low delinquency and default rates through an effective credit risk managementprocess. However, high rates of delinquency or default may occur, which could negatively affect our business, financial condition and results of operations. Interestrates we charge may not be sufficient to cover our costs and expenses in providing the loans, including the costs associated with borrower defaults. Moreover, upona borrower’s default, we may need to devote internal resources or engage third-party collection agencies to collect the receivables. If any collection personnel areinvolved with any misconduct or there are perceptions that our collection practices are considered to be aggressive or not compliant with relevant laws andregulations, our reputation and business may be harmed or may become subject to fines or other penalties.26Table of ContentsOther Operational RisksWe rely on technology and internet infrastructure, data center and cloud service providers and telecommunications networks in the markets where we operate.We are continuously upgrading our technology to provide improved performance, increased scale, security and better integration among our threebusinesses. If we experience problems with the functionality and effectiveness of our software or platforms, or are unable to maintain and constantly improve ourtechnology infrastructure to handle our business needs and ensure a consistent and acceptable level of service for our users, our business, financial condition andresults of operations, as well as our reputation, could be materially and adversely affected. In addition, our businesses depend on the performance and reliability ofour internet ecosystem and infrastructure and contracted data center and cloud service providers in the markets where we operate. Adopting new technologies andupgrading our internet ecosystem and infrastructure require significant investments of time and resources, including adding new hardware, updating software andrecruiting and training new engineers. Adverse consequences for the failure to do so may include unanticipated system disruptions, security breaches, computervirus attacks, slower response times, impaired quality of experiences for our users and delays in reporting accurate operating and financial information.The internet infrastructure in some of the markets where we operate may not support the demands associated with continued growth in internet usage. Wemay not have access to alternative networks or data servers in the event of disruptions or failures of, or other problems with, the relevant internet infrastructure.Interruptions in our services may reduce our revenue and/or subject us to potential liability.We also rely on major telecommunication operators and internet service providers in the markets where we operate to provide us with data communicationscapacity primarily through local telecommunications lines and data centers to host our servers. We and our users may not have access to alternative services in theevent of disruptions or failures of, or other problems with, the fixed telecommunications networks of these telecommunications operators, or if such operatorsotherwise fail to provide such services. Any unscheduled service interruption could disrupt our operations, damage our reputation and result in a decrease in ourrevenue. We have no control over the costs of the services provided by the telecommunications operators to us and our users. If the prices that we pay fortelecommunications and internet services rise significantly, our gross margins could be significantly reduced. In addition, if internet access fees or other charges tointernet users increase, our user traffic may decrease, which in turn may cause our revenue to decline.We may fail to attract, motivate and retain the key members of our management team or other experienced and capable employees.Our future success significantly depends on the continued service of our executives and other key employees. If we lose the services of any member ofmanagement or any key personnel, we may not be able to locate a suitable or qualified replacement and we may incur additional expenses to recruit and train areplacement, which could severely disrupt our business and growth. In addition, from time to time, there may be changes in our management team that may bedisruptive to our business.To maintain and grow our business, we will need to identify, hire, develop, motivate and retain highly skilled employees. Identifying, recruiting, training,integrating and retaining qualified individuals requires significant time, expense and attention. We may also be subject to local hiring restrictions in certain markets,particularly in connection with the hiring of foreign employees, which may affect the flexibility of our management team and workforce. If our management team,including any new hires that we make, fail to work together effectively and execute our plans and strategies, or if we are unable to recruit and retain employeeseffectively, our ability to achieve our strategic objectives will be adversely affected and our business and growth prospects will be harmed.Competition for highly skilled personnel is intense. We may need to invest significant amounts of cash and equity to attract and retain new employees andwe may not be able to realize returns on these investments.27Table of ContentsWe may need additional capital, but may be unable to obtain it on favorable terms or at all.We may require additional cash capital resources in order to fund future growth and the development of our businesses, including expansion of our e-commerce and digital financial service businesses and any investments or acquisitions we may decide to pursue. If our cash resources are insufficient to satisfy ourcash requirements, we may seek to issue additional equity or debt securities or obtain new or expanded credit facilities. Our ability to obtain external financing in thefuture is subject to a variety of uncertainties, including market conditions, our future financial condition, results of operations, cash flows, share price performance,liquidity of international capital and lending markets, governmental regulations over foreign investment and the digital entertainment, e-commerce and digital financialservices industries in our various markets. In addition, incurring indebtedness would subject us to increased debt service obligations and could result in operatingand financing covenants that would restrict our operations. There can be no assurance that financing will be available in a timely manner or in amounts or on termsacceptable to us, or at all. Any failure to raise needed funds on terms favorable to us, or at all, could severely restrict our liquidity as well as have a material adverseeffect on our business, financial condition and results of operations. Moreover, any issuance of equity or equity-linked securities could result in significant dilution toour existing shareholders.We may have exposure to greater than anticipated tax liabilities, and our financial position and results of operations may be adversely affected by theimplementation of legislation or internationally accepted principles governing the taxation of cross-border income.Tax legislation relating to the digital economy is still developing. Governments in our markets may promulgate or strengthen the implementation of taxregulations and impose more tax obligations on our services and product offerings, which could increase the costs to our users and merchants and make our servicesand product offerings less competitive.Shopee as the marketplace operator could potentially be required to report transactions made by sellers and other service providers through the platform tothe tax authorities in the future and may also be subject to additional tax or withholding obligations. Governments in some of our markets have discussedpromulgating laws to require e-commerce marketplace operators to assist in the enforcement of tax requirements on sellers and collection of taxes with respect torevenues or profits generated by sellers. Although such new legislation has been withdrawn, there is no guarantee that governments will not impose similarrequirements or we will not be held responsible for the delinquent tax owed by sellers and service providers in future. If we are held responsible, whether financially oroperationally for such taxes, our business, financial condition and results of operations may be materially and adversely affected. We may also be requested bygovernment authorities to supply information about our sellers, such as transaction records and seller’s information, and assist in the enforcement of other taxregulations, which could affect our relationships with sellers.Corporate tax reform, base-erosion efforts and tax transparency continue to be high priorities in many tax jurisdictions, including in our markets or in otherjurisdictions we may expand to in the future. The Organization for Economic Cooperation and Development, or OECD, has published proposals to advanceinternational negotiations to ensure large and highly profitable multinational enterprises, including digital companies, pay tax wherever they have significantconsumer-facing activities and generate their profits. These actions aim to standardize and modernize global corporate tax policy, including cross-border taxes,transfer-pricing documentation rules and nexus-based tax incentive practices, and has heightened scrutiny of policies regarding corporate income and other taxes inmany jurisdictions. Tax reform legislation has been enacted, implemented or are being proposed in many such jurisdictions. For example, certain jurisdictions in theAsia, Europe and Latin America have already enacted or are discussing new tax laws, rules and regulations directed at the digital economy and multi-nationalbusinesses. The European Commission has also proposed a series of measures aimed at ensuring fair and efficient taxation of digital businesses operating within theEuropean Union. Such laws may increase our tax obligations in those markets or change the manner in which we operate our businesses locally, and may adverselyaffect our business, financial condition and results of operations.In addition, the OECD has published proposals covering a number of issues, including country-by-country reporting, permanent establishment rules, transferpricing rules, tax treaties and taxation of the digital economy. If existing tax laws, rules or regulations in our markets are amended, or if new tax laws, rules or regulationsare enacted, including with respect to digital services tax, sales tax, value-added taxes, withholding taxes, revenue-based taxes or other similar taxes applicable to thedigital economy or multi-national businesses, the results of these changes could increase our effective tax rate, tax liabilities and/or associated costs. Possibleimplications may include multiple levels of taxation, additional obligations, prospectively or retrospectively, as well as imposition of interest and penalties if non-compliance is determined. Potential heightened tax law enforcement against us could have a material adverse effect on our business, financial condition and results ofoperations.28Table of ContentsWe may not achieve the intended tax efficiencies of our corporate structure and intercompany arrangements, which could increase our worldwide effective taxrate.Our corporate structure and intercompany arrangements, including the manner in which we conduct our intercompany and related party transactions, areintended to provide us with worldwide tax efficiencies. The application of tax laws of various jurisdictions to our business activities is subject to interpretation andalso depends on our ability to operate our business in a manner consistent with our corporate structure and intercompany arrangements. The tax authorities ofjurisdictions where we operate may challenge our methodologies for intercompany and related party arrangements, including transfer pricing. We could face adversetax consequences if local tax authorities determine that any transactional arrangements among our group entities were not entered into on an arm’s length basis insuch a way as to result in an impermissible reduction in taxes under the applicable laws, rules and regulations, and adjust the income of such group entities in the formof a transfer pricing adjustment. A transfer pricing adjustment could, among other things, result in a reduction of expense deductions recorded by our group entitiesfor tax purposes, which could in turn increase their tax liabilities. In addition, local tax authorities may impose late payment fees and other penalties on our entities forthe adjusted but unpaid taxes according to the applicable regulations. If the manner in which we operate does not achieve the intended tax consequences, ourworldwide effective tax rate could increase and our financial condition and results of operations could be adversely affected.A certain degree of judgment is required in evaluating our tax positions and determining our provision for income taxes. In the ordinary course of business,there are many transactions and calculations for which the ultimate tax determination is uncertain. For example, our effective tax rate could be adversely affected bylower than anticipated earnings in markets where we have lower statutory rates and higher than anticipated earnings in markets where we have higher statutory rates,by changes in foreign currency exchange rates or by changes in the relevant tax, accounting and other laws, regulations, principles and interpretations. Any of thesefactors could materially and adversely affect our business, financial condition and results of operations.We have limited business insurance coverage.Insurance products available in the markets in which we operate currently are not as extensive as those offered in more developed regions. Consistent withcustomary industry practice in our markets, our business insurance is limited. While we have obtained insurance to cover certain potential risks and liabilities forcertain businesses we operate, the coverage of any insurance we have may be insufficient to compensate for all losses that may occur. We do not carry businessinterruption insurance to cover our operations. We have determined that the costs of insuring for related risks and the difficulties associated with acquiring suchinsurance on commercially reasonable terms make it impractical for us to carry such insurance. Any uninsured damage to our platforms, technology infrastructures ordisruption of our business operations could require us to incur substantial costs and divert our resources, which could have an adverse effect on our business,financial condition and results of operations.Industry data, projections and estimates contained in this annual report are inherently uncertain and subject to interpretation.Certain facts, forecasts and other statistics relating to the industries in which we compete contained in this annual report have been derived from variouspublic sources and commissioned third-party industry reports. In particular, we commissioned Frost & Sullivan to conduct certain market research concerning the e-commerce market in our region, and International Data Corporation to conduct certain market research concerning the digital financial services in our region. Inderiving market data, these industry consultants may have adopted different assumptions and estimates. While we generally believe such reports to be reliable, wehave not independently verified the accuracy or completeness of such information. Such reports may not be prepared on a comparable basis or may not be consistentwith other sources.Industry data, projections and estimates are inherently uncertain as they require certain assumptions and judgments. Moreover, geographic markets and theindustries we operate in are not rigidly defined or subject to standard definitions, and are the result of subjective interpretation. Accordingly, our use of the termsreferring to our geographic markets and industries such as digital entertainment, e-commerce and digital financial services markets may be subject to interpretation,and the resulting industry data, projections and estimates may not be reliable. In addition, we define our region as the six major markets in the Southeast Asia region,namely Indonesia, Vietnam, Thailand, the Philippines, Malaysia and Singapore, plus Taiwan. Our industry and market data should be interpreted in light of the definedgeographic markets and defined industries we operate in. Any discrepancy in interpretation could lead to different industry data, measurements, projections andestimates and result in errors and inaccuracies. For these reasons, you should not place undue reliance on such information.29Table of ContentsOur user metrics and other estimates are subject to inherent challenges in measuring our operating performance.We regularly review metrics, including our QAUs, QPUs, orders, GMV and total payment volume, to evaluate growth trends, measure our performance, andmake strategic decisions. These metrics are calculated using internal company data and have not been validated by an independent third party. While these numbersare based on what we believe to be reasonable estimates for the applicable period of measurement, there are inherent challenges in measuring how our services areused across large populations throughout our markets. For example, we believe that we cannot distinguish individual users who have multiple accounts. Our usermetrics are also affected by technology on certain mobile devices that automatically runs in the background of our applications when another phone function is used,and this activity can cause our system to miscount the user metrics associated with such accounts. Our user metrics may also differ from estimates published by thirdparties or from similarly titled metrics of our competitors due to differences in assumptions, methodologies or data used.Errors or inaccuracies in our metrics or data could result in incorrect business decisions and inefficiencies. For instance, if a significant understatement oroverstatement of active users were to occur, we may expend resources to implement unnecessary business measures or fail to take required actions to remedy anunfavorable trend. If partners or investors do not perceive our user, geographic or other operating metrics to accurately represent our user base, or if we discovermaterial inaccuracies in our user, geographic or other operating metrics, our reputation may be seriously harmed.If we fail to maintain an effective internal control over financial reporting, we may be unable to accurately report our results of operations, meet our reportingobligations or prevent fraud.As a public company, we are subject to the Sarbanes-Oxley Act of 2002. Section 404 of the Sarbanes-Oxley Act of 2002 requires us to evaluate and determinethe effectiveness of our internal control over financial reporting, report any material weaknesses in such internal controls and for our independent registered publicaccounting firm to issue an attestation report on management’s assessment on the effectiveness of internal control over financial reporting.Our management has concluded that our internal control over financial reporting is effective as of December 31, 2020. See “Item 15. Controls and Procedures—Management’s Annual Report on Internal Control over Financial Reporting.” Our independent registered public accounting firm has issued an attestation report onmanagement’s assessment on the effectiveness of internal control over financial reporting. However, if we fail to maintain an effective internal control environment, wecould suffer material misstatements in our financial statements and fail to meet our reporting obligations, which could cause investors to lose confidence in ourreported financial information. This could in turn limit our access to capital markets, and investor confidence in us and the market price of our ADSs may decline.Additionally, ineffective internal control over financial reporting could expose us to increased risk of fraud or misuse of corporate assets and subject us to potentialdelisting from the New York Stock Exchange, regulatory investigations and civil or criminal sanctions.We may be subject to risks related to litigation and regulatory proceedings.We and our directors and officers may be, and in some instances have been, subject to claims, lawsuits (including class actions and individual lawsuits),regulatory and government investigations, and other proceedings relating to alleged infringement or violation of third-party intellectual property rights, consumerprotection, privacy and data protection, labor and employment, import and export practices, antitrust or competition, securities, tax, marketing and communicationspractices, contracts, commercial disputes, consumer complaints, and various other matters. The number and significance of our legal disputes and inquiries haveincreased as we have grown larger, as our business has expanded in scope and geographic reach, and as our services have increased in complexity.30Table of ContentsAs a fast-growing public company, our public profile has grown, which may result in increased litigation as well as increased public awareness of any suchlitigation. In addition, we may be the target of securities class action and derivative lawsuits, as well as other types of claims. We will need to defend against suchlawsuits, including any appeals, and we may also initiate legal proceedings to protect our rights and interests. There is substantial uncertainty regarding the scopeand application of many of the laws and regulations to which we are subject, which increases the risk that we will be subject to claims alleging violations of those lawsand regulations. Any adverse outcome of these cases could have a material adverse effect on our reputation, business, financial condition and results of operations.Regardless of its outcome, any legal proceeding can have a material adverse effect on us due to costs, diversion of our resources, negative publicity andother factors. We may decide to settle legal disputes, including on terms that are unfavorable to us. If any litigation to which we are a party is resolved adversely, wemay be subject to an unfavorable judgment that we may not choose to appeal or that may not be reversed upon appeal. We may have to seek a license to continuepractices alleged or found to be in violation of a third party’s rights. If we are required or choose to enter into royalty or licensing arrangements, such arrangementsmay not be available on reasonable terms, or at all, and may significantly increase our operating costs and expenses. As a result, we may also be required to developor procure alternative non-infringing technology or products or discontinue the use of certain technology or products, and doing so could require significant effortand expense, or may not be feasible. In addition, the terms of any settlement or judgment in connection with any legal claims, lawsuits, or proceedings may require usto cease some or all of our operations, make changes to our business operations or other practices, terminate agreements, arrangements or transactions found to beviolative of applicable laws or regulations, or pay fines or substantial amounts to the other party to those proceedings and could materially and adversely affect ourbusiness, financial condition and results of operations.We rely on structural arrangements to establish control over certain entities and government authorities may determine that these arrangements do not complywith existing laws and regulations. We are also subject to other risks relating to such structural arrangements.The laws and regulations in some of our markets place restrictions on foreign investment in and ownership of entities engaged in a number of businessactivities. To comply with the relevant laws and regulations, we and certain of our wholly-owned subsidiaries in the Cayman Islands and Singapore have entered intoa series of contractual arrangements with certain local entities, or VIEs, and their shareholders who are local citizens, which enable us to (i) exercise effective controlover such VIEs, (ii) receive substantially all of the economic benefits and absorb the losses of such VIEs, and (iii) have an exclusive call option to purchase all or partof the equity interests in and/or assets of such VIEs when and to the extent permitted under the relevant laws. Because of these contractual arrangements, we havecontrol over and are the primary beneficiary of such VIEs and hence consolidate their financial results under U.S. GAAP. For the year ended December 31, 2020,revenue from all our VIEs (which excludes entities for which we have majority direct equity ownership) accounted for 12.9% of our total revenue. None of our VIEs isindividually a significant subsidiary as defined in Rule 1-02(w) of Regulation S-X. See “Item 4. Information on the Company—C. Organizational Structure—ContractualArrangements among Our VIEs, Their Shareholders and Us.”In Thailand, we conduct our business activities using a tiered shareholding structure in which direct foreign ownership in each Thai entity is less than 50%.See “Item 4. Information on the Company—C. Organizational Structure—Thailand Shareholding Structure.” As Thai laws only consider the immediate level ofshareholding, no cumulative or look-through calculation is applied to determine the foreign ownership status of a company when it has several levels of foreignshareholding. Such shareholding structure has allowed us to consolidate our Thai operating entities as our subsidiaries.While we believe the structural or contractual arrangements we use are in compliance with applicable local laws, the local or national authorities or regulatoryagencies in such jurisdictions may reach a different conclusion, which could lead to an action being brought against us, the VIEs and their shareholders byadministrative orders or in local courts. If local authorities find that our arrangements do not comply with their prohibition or restrictions on foreign investment in ourlines of business, or if the relevant government otherwise finds that we or any of our subsidiaries, VIEs or their subsidiaries are in violation of the relevant laws orregulations or lack the necessary registrations, permits or licenses to operate our businesses in such jurisdictions, they would have broad discretion in dealing withsuch violations or failures, including:●revoking the business licenses and/or operating licenses of such entities;31Table of Contents●discontinuing or placing restrictions or onerous conditions on the operations of our VIEs or Thai subsidiaries, or on our operations through anytransactions between our company or our Cayman Islands or Singapore subsidiaries on the one hand and our VIEs, subsidiaries of such VIEs or ourThai subsidiaries on the other hand;●imposing fines, prohibiting payments by our VIEs or their shareholders to us as contemplated in the contractual arrangements with our VIEs,confiscating income from us, our Cayman Islands or Singapore subsidiaries, VIEs or Thai subsidiaries, or imposing other requirements with which suchentities may not be able to comply;●imposing criminal penalties, including fines and imprisonment on our VIEs or Thai subsidiaries, their shareholders or directors;●requiring us to restructure our ownership structure or operations, including terminating the contractual arrangements with our VIEs and theirshareholders, which in turn would affect our ability to consolidate, derive economic interests from, or exert effective control over our VIEs or Thaisubsidiaries; or●restricting or prohibiting us from providing funding to our business and operations in Vietnam and Thailand.Any of these actions could disrupt the business operations of such entity and may damage our reputation, which would in turn adversely affect ourbusiness, financial condition and results of operations. If any of these occurrences results in our inability to direct the activities of our VIEs or Thai subsidiaries thatmost significantly impact such entity’s economic performance, or prevent us from receiving the economic benefits or absorbing losses from such entity, we may not beable to consolidate the entity in our consolidated financial statements in accordance with U.S. GAAP.The shareholders of our VIEs are our local employees or other local citizens. None of these shareholders has a significant equity interest in our company andthus their interests may not be aligned with ours, or they may have other potential conflicts of interest with us. These shareholders of our VIEs may breach, or causeour VIEs to breach, the existing contractual arrangements we have with them and our VIEs, which would adversely affect our ability to effectively control our VIEs andreceive economic benefits and absorb losses from them. Currently, we do not have any arrangements to address potential conflicts of interest between theseshareholders and our company. If our VIEs or their shareholders fail to perform their respective obligations under any such contractual arrangements, fail to conducttheir operations in an acceptable manner or take other actions that are detrimental to our interests, we may incur substantial costs and expend additional resources toenforce such arrangements. We may also have to rely on legal remedies, including seeking specific performance or injunctive relief, and claiming damages. Such legalremedies may differ between jurisdictions, and may be more difficult to pursue than those available in the United States. In addition, if any third parties claim anyinterest in the equity interests of our VIEs, our ability to exercise shareholders’ rights or foreclose the share pledge according to the contractual arrangements may beimpaired. If any dispute relating to these contracts remains unresolved, we will have to enforce our rights under these contracts through the operations of the lawswhere our VIEs are located and through arbitration, litigation or other legal proceedings and therefore will be subject to uncertainties in the legal systems in therelevant jurisdiction. Our contractual arrangements with our VIEs may not be as effective in ensuring our control over the relevant portion of our business operationsas direct ownership would be.As part of our structural arrangements with our VIEs, certain of our VIEs hold certain licenses and assets that are used in the operation of their business inthe relevant jurisdictions. If any of our VIEs go bankrupt and all or part of their assets become subject to liens or rights of third-party creditors, we may be unable tocontinue some or all of the business activities conducted by such VIEs. Under the structural arrangements, our VIEs may not, in any manner, sell, transfer, mortgage ordispose of their assets or legal or beneficial interests in the business without our prior consent. If our VIEs undergo a voluntary or involuntary liquidation proceeding,their independent third-party creditors may claim rights to some or all of these assets, thereby hindering our ability to operate the business the VIEs currentlyconduct, which could adversely affect our business, financial condition and results of operations.32Table of ContentsMARKETS RELATED RISKSChanges in economic, political or social conditions or government policies in our markets could have a material adverse effect on our business and operations.Substantially all of our assets and a significant majority of our operations are located in our markets in Southeast Asia, Taiwan and Latin America.Accordingly, our business, financial condition and results of operations may be influenced to a significant degree by political, economic and social conditions in thesemarkets. The economies in emerging markets generally differ from developed markets in many respects, including the level of government involvement, level ofdevelopment, growth rate, control of foreign exchange, government policy on public order and allocation of resources. In some of our markets, governments continueto play a significant role in regulating industry development by imposing industrial policies. Some local governments also exercise significant control over theeconomic growth and public order in their respective jurisdictions through allocating resources, controlling payment of foreign currency-denominated obligations,setting monetary policies, and providing preferential treatment to particular industries or companies. Governmental actions to control inflation and other policies andregulations have often involved, among other measures, price controls, currency devaluations, capital controls and limits on imports. Our business, financial conditionand results of operations may be adversely affected by changes in government policies or regulations, such as exchange rates and exchange control policies, inflationrates, interest rates, tariff and inflation control policies, price control policies, import duties and restrictions, liquidity of domestic capital and lending markets,electricity rationing tax policies, including royalty, tax increases and retroactive tax claims, and other political, diplomatic, social and economic developments in oraffecting the markets where we operate.Growth of the economy of our various markets has been uneven, both geographically and among various sectors of the economy. Any adverse changes ineconomic conditions in our markets or neighboring regions, or in the policies of the governments or of the laws and regulations in each respective market could have amaterial adverse effect on the overall economic growth of our markets. Such developments could adversely affect our business, financial condition and results ofoperations, lead to reduction in demand for our products and services, and adversely affect our competitive position. Many of the governments in our markets haveimplemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures may benefit the overall economy, butmay have a negative effect on us. For example, our business, financial condition and results of operations may be adversely affected by government control overforeign capital investments or changes in tax regulations. Some of our markets have historically experienced low growth in their gross domestic product, or GDP,significant inflation and/or shortages of foreign exchange. We are exposed to the risk of cost increases due to potential inflation in the markets in which we operate. Inthe past, governments in some of our markets have implemented interest rate adjustments, currency trading band adjustments, exchange rate controls and othermeasures to control the pace of economic growth. These measures, or the perception that any of them could occur, may cause decreased economic activity in therelevant markets, which may adversely affect our business, financial condition and results of operations.Some of our markets have experienced, and may in the future experience, political instability, including strikes, demonstrations, protests, marches, coupsd’état, guerilla activity or other types of civil disorder. These instabilities and any adverse changes in the political environment could increase our costs, increase ourexposure to legal and business risks, disrupt our office operations or affect our ability to expand our user base.Our businesses and operations in Taiwan may be materially and adversely impacted if we are deemed to be a PRC investor.Although there have been significant economic and cultural interactions and relationships established between Taiwan and the PRC, there have been andremain tensions between the governments of Taiwan and the PRC regarding the international political status of Taiwan. Such tensions may affect the economic andsocial activities in Taiwan, which may in turn affect our businesses and operations in Taiwan. The Taiwan government has historically imposed prohibitions andrestrictions on investments, directly and indirectly, by PRC investors. “PRC investors” refer to PRC individuals, juristic persons, organizations and other institutions,and PRC invested companies from other jurisdictions. “PRC invested companies from other jurisdictions” refer to those entities incorporated outside of the PRC andinvested by PRC individuals, juristic persons, organizations and other institutions that: (i) directly or indirectly hold more than 30% of the shares or capital of suchentities (each intermediate holding company shall be separately assessed based on this 30% test to determine whether it is deemed a PRC invested company fromother jurisdictions), or (ii) have the ability to control such entities. Under the current policies on PRC investments in Taiwan, PRC investors are allowed to invest, uponprior approval, in Taiwan companies that operate business in the statutory business categories listed as permitted in the Positive Listings promulgated by the Taiwanauthorities, and are prohibited or restricted from investing in all other businesses. In addition, if a PRC investor is a juristic person, organization, or other institutioninvested by (a) the “political party”, military, administrative or political agency of PRC, or (b) PRC invested companies from other jurisdictions (defined in “Item 4.Information on the Company—B. Business Overview—Regulation—Taiwan—Regulations on Foreign Investment”) invested by the agency listed in item (a) above,the Taiwan authorities may restrict or prohibit such PRC investor from investing in businesses in Taiwan.33Table of ContentsUnder Taiwan company law, a Taiwan company is required to select from a statutory list of business categories for inclusion in its corporate registrationbased on various aspects of its business operations. Some of the statutory categories currently listed in the corporate registration of our Taiwan operating entitiesinclude computer recreational activities, software publication, third-party payments and general advertising services that are not within the Positive Listings. Theother statutory business categories currently listed in the business scope of the corporate registration of our Taiwan operating entities are within the PositiveListings, including the data processing services listed in the corporate registration of our digital entertainment and e-commerce business entities, and the softwaredesign services currently listed in the corporate registration of our digital entertainment business entity.We do not believe, based on advice from our Taiwan counsel, LCS & Partners, that we are a PRC investor under existing Taiwan law and court judgments.Therefore, we do not believe that we are prohibited from operating businesses that have statutory business categories not listed as permitted in the Positive Listingsor that we need to seek prior PRC investment approval for operating businesses that have statutory business categories listed as permitted in the Positive Listings.We currently operate our digital entertainment and e-commerce businesses in Taiwan through our wholly-owned branch offices in Taiwan. Both of such entities wereacquired or established upon approval by the relevant Taiwan government authorities. However, should the Taiwan authorities deem us to be a PRC investor, theTaiwan authorities may take a range of actions, including:●imposing fines between NT$120,000 (US$4,274) to NT$25,000,000 (US$890,313) and further fines if the non-compliance is not rectified as ordered;●ordering us to reduce any direct or indirect ownership or control by PRC investors in our company;●requesting us to divest some or all of our ownership or control in our operating entities in Taiwan;●suspending the rights of shareholders of our Taiwan operating entities; and●discontinuing the operations and revoking the business licenses of our Taiwan operating entities.If any such action is taken, our operations in Taiwan and our business, financial condition and results of operations may be materially and adversely affected.Uncertainties with respect to the legal system in certain of our markets could adversely affect us.The legal systems in many of our markets vary significantly from jurisdiction to jurisdiction. Some jurisdictions have a civil law system based on writtenstatutes and others are based on common law. Unlike the common law system, prior court decisions under the civil law system may be cited for reference but havelimited precedential value.Many of our markets have not developed a fully integrated legal system, and recently enacted laws and regulations may not sufficiently cover all aspects ofeconomic activities in such markets. In particular, the interpretation and enforcement of these laws and regulations involve uncertainties, and the application of someof these laws and regulations to our businesses is not settled. Since local administrative and court authorities have significant discretion in interpreting andimplementing statutory provisions and contractual terms, it may be difficult to evaluate the outcome of administrative and court proceedings and the level of legalprotection we have in many of the localities in which we operate. Local courts may have broad discretion to reject enforcement of foreign awards or arbitration awards.These uncertainties may affect our judgment on the relevance of legal requirements and our ability to enforce our contractual rights or claims. In addition, theregulatory uncertainties may be exploited through unmerited or frivolous legal actions, claims concerning the conduct of third parties, or threats in attempt to extractpayments or benefits from us.Many jurisdictions in our markets have enacted, and may enact or amend from time to time, laws and regulations governing the distribution of games,services, advertising, marketing, messages, applications, electronic documents and other content or communications through the internet or on digital platforms. Therelevant government authorities may prohibit the distribution of information through the internet that they deem to be objectionable on various grounds, such aspublic interest or public security, or to otherwise be in violation of local laws and regulations. If any information disseminated through our platforms were deemed byany relevant government authorities to violate content restrictions, we may not be able to continue to display such content and could be subject to penalties,including confiscation of the property used in the non-compliant acts, removal of the infringing content, temporary or permanent blocks, administrative fines,suspension of business, revocation of the registration to act as an electronic systems provider and revocation of required licenses, which could materially andadversely affect our business, financial condition and results of operations.34Table of ContentsMany of the legal systems in our markets are based in part on government policies and internal rules, some of which are not published on a timely basis or atall and may have retroactive effect. There are other circumstances where key regulatory definitions are unclear, imprecise or missing, or where interpretations that areadopted by regulators are inconsistent with interpretations adopted by a court in analogous cases. As a result, we may not be aware of our violation of certainpolicies and rules until sometime after the violation. In addition, any administrative and court proceedings in our markets may be protracted, resulting in substantialcosts and diversion of resources and management attention.It is possible that a number of laws and regulations may be adopted or construed to apply to us that could restrict our industries. Scrutiny and regulation ofthe industries in which we operate may further increase, and we may be required to devote additional legal and other resources to addressing such regulation. Forexample, existing laws or new laws regarding the regulation of currency, money laundering, banking institutions, unclaimed property, e-commerce, consumer and dataprotection and intermediary payments may be interpreted to cover virtual items offered in our digital entertainment business and services offered on our e-commerceplatform or through our mobile wallet networks. Changes in current laws or regulations or the imposition of new laws and regulations regarding our industries mayslow the growth of our industries and adversely affect our financial condition and results of operations.It is not certain if Sea Limited will be classified as a Singapore tax resident.Under the Singapore Income Tax Act, a company established outside Singapore but whose governing body, being the board of directors, usually exercisesde facto control and management of its business in Singapore could be considered a tax resident in Singapore. However, such control and management of thebusiness should not be deemed to be in Singapore if physical board meetings are mainly conducted outside of Singapore. Where board resolutions are passed in theform of written consent signed by the directors each acting in their own jurisdictions, or where the board meetings are held by teleconference or videoconference, it ispossible that the place of de facto control and management will be considered to be where the majority of the board are located when they sign such consent or attendsuch conferences.We believe that Sea Limited is not a Singapore tax resident for Singapore income tax purposes. However, the tax residence status of Sea Limited is subject todetermination by the Inland Revenue Authority of Singapore, or IRAS, and uncertainties remain with respect to the interpretation of the term “control andmanagement” for the purposes of the Singapore Income Tax Act. If IRAS determines that Sea Limited is a Singapore tax resident for Singapore income tax purposes,the portion of Sea Limited’s single company income on an unconsolidated basis that is received or deemed by the Singapore Income Tax Act to be received inSingapore, where applicable, may be subject to Singapore income tax at the prevailing tax rate of 17% before applicable income tax exemptions or relief. If Sea Limited isregarded as a Singapore tax resident, any dividends received or deemed received by Sea Limited in Singapore from subsidiaries located in a foreign jurisdiction with arate of income tax or tax of a similar nature of no more than 15% may generally be subject to additional Singapore income tax where there is no other applicable taxtreaty between such foreign jurisdiction and Singapore. Income is considered to have been received in Singapore when it is: (i) remitted to, transmitted or brought intoSingapore; (ii) applied in or towards satisfaction of any debt incurred in respect of a trade or business carried on in Singapore; or (iii) applied to purchase any movableproperty that is brought into Singapore. In addition, as Singapore does not impose withholding tax on dividends declared by Singapore resident companies, if SeaLimited is considered a Singapore tax resident, dividends paid to the holders of our ordinary shares and ADSs will not be subject to withholding tax in Singapore.Regardless of whether or not Sea Limited is regarded as a Singapore tax resident, holders of our ordinary shares or the ADSs who are not Singapore tax residentswould generally not be subject to Singapore income tax on gains derived from the disposal of our ordinary shares or the ADSs if such shareholders do not maintain apermanent establishment in Singapore, to which the disposition gains may be effectively connected, and the entire process (including the negotiation, deliberation,execution of the acquisition and sale, etc.) leading up to the actual acquisition and sale of the ADSs or our ordinary shares is performed outside of Singapore. ForSingapore resident shareholders, if the gain from disposal of our ordinary shares or the ADSs is considered by IRAS as income in nature, such gain will generally besubject to Singapore income tax, and not taxable in Singapore if the gain is considered by IRAS as capital gains in nature. See “Item 10. Additional Information—E.Taxation—Singapore Taxation—Income Tax—Gains With Respect to Disposition of Our ADSs or Our Ordinary Shares.”35Table of ContentsIt will be difficult to acquire jurisdiction and enforce liabilities against our assets based in some of our markets.Substantially all of our assets are located outside the United States. In addition, all of our directors and executive officers are nationals or residents ofjurisdictions other than the United States and substantially all of their assets are located outside the United States. As a result, it may be difficult or impossible for ourshareholders to effect service of process within the United States upon us or these persons, or to enforce judgments obtained in the United States courts against usor them, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States. It may also bedifficult for you to enforce judgments obtained in the United States based on the civil liability provisions of the United States federal securities laws against us andour directors and executive officers. Even if our shareholders are successful in bringing an action of this kind, the laws of the Cayman Islands and of the jurisdictionsthat comprise our markets may render our shareholders unable to enforce a judgment against our assets or the assets of our directors and executive officers.Management has been advised that Indonesia, Taiwan, Thailand, Vietnam and many of the other jurisdictions within Southeast Asia do not have treaties providing forthe reciprocal recognition and enforcement of judgments of courts with the United States. It is unclear if extradition treaties now in effect between the United Statesand some of our markets, such as Indonesia, the Philippines and Malaysia, would permit effective enforcement of criminal or other penalties, including those underU.S. federal securities laws.The ability of our subsidiaries to distribute dividends to us may be subject to restrictions under the laws of their respective jurisdictions.We are a holding company, and most of our subsidiaries are located throughout the markets in our region. Part of our primary internal sources of funds tomeet our cash needs is our share of the dividends, if any, paid by our subsidiaries. The distribution of dividends to us from the subsidiaries in these markets as well asother markets where we operate is subject to restrictions imposed by the applicable laws and regulations in these markets. See “Item 4. Information on the Company—B. Business Overview—Regulation.” In addition, although there are currently no foreign exchange control regulations which restrict the ability of our subsidiaries inIndonesia, Vietnam, Thailand, Singapore and some of our other markets to distribute dividends to us, the relevant regulations may be changed and the ability of thesesubsidiaries to distribute dividends to us may be restricted in the future.Restrictions on currency exchange may limit our ability to receive and use our cash effectively.A significant portion of our revenue and expenses are denominated in currencies subject to exchange control. If revenue denominated in such currenciesincrease or expenses denominated in such currencies decrease in the future, we may need to convert a portion of our revenue into other currencies to meet our foreigncurrency obligations. Currently, in Taiwan, a single remittance by a company for an amount over US$1 million shall be reported and documents supporting theaccuracy of such report shall be provided to the bank handling such remittance before the remittance is conducted. In addition, remittances by a company in annualaggregate amounts exceeding US$50 million may not be processed without the approval of the Central Bank of the Republic of China (Taiwan). In Vietnam, exchangingVietnamese dong into foreign currency must be conducted at a licensed credit institution such as a licensed commercial bank. Conversion of Thai baht to anothercurrency is subject to regulations promulgated by the Ministry of Finance and Bank of Thailand. Conversion of Indonesian rupiah into any foreign currency thatexceeds certain specific threshold is required to have an underlying transaction and supported by underlying transaction documents. We may be unable to convertsuch local currencies into U.S. dollars or other foreign currencies to pay dividends or for other purposes on a timely basis or at all.36Table of ContentsRISKS RELATED TO THE ADSsThe trading price of the ADSs is likely to be volatile, which could result in substantial losses to investors.The trading price of the ADSs is likely to be volatile and could fluctuate widely due to factors beyond our control. This may happen because of broad marketand industry factors, including the performance and fluctuation of the market prices of other companies with business operations located mainly in the same marketsas us that have listed their securities in the United States. In addition to market and industry factors, the price and trading volume for the ADSs may be highly volatilefor factors specific to our own operations, including the following:●variations in our quarterly or annual revenue, earnings and cash flow;●announcements of new investments, acquisitions, strategic partnerships or joint ventures by us or our competitors;●announcements of new content and services or plans of expansion by us or our competitors;●changes in financial estimates by securities analysts;●downgrades by industry or securities analysts that publish research or reports on us;●detrimental adverse publicity about us, our businesses or our industries;●additions or departures of key personnel;●release of lock-up or other transfer restrictions on our outstanding equity securities or sales of additional equity securities, including the perception thatthese sales could occur;●dilution of the ownership interests of our ADS holders due to conversions of our 2023, 2024 and 2025 convertible notes, which we may choose to settleby issuing ADSs, or from the unwinding of capped call transactions in connection with our 2024 and 2025 convertible notes;●current class action, potential litigation or regulatory investigations; and●volatility in the stock market.Any of these factors may result in large and sudden changes in the volume and price at which the ADSs will trade.Substantial future sales or perceived potential sales or issuances of our ADSs, Class A ordinary shares or other equity securities could cause the price of ourADSs to decline significantly. As of March 5, 2021, the aggregate principal amount outstanding of our 2023, 2024 and 2025 convertible notes was US$42.9 million,US$1,044.3 million and US$1,149.5 million, respectively. The holders of our 2023, 2024 and 2025 convertible notes may convert their convertible notes in accordancewith the instruments governing such convertible notes at the initial conversion rate of 50.5165 ADSs, 19.9475 ADSs and 11.0549 ADSs per US$1,000 principal amount,respectively. Our 2023, 2024 and 2025 convertible notes are currently convertible in accordance with their terms. If these convertible notes are converted and we issueADSs to settle our obligations, the ownership interest of our ADS holders will be further diluted.Certain shareholders have substantial influence over our company and their interests may not be aligned with the interests of our other shareholders.We have adopted a dual-class voting structure such that our ordinary shares consist of Class A ordinary shares and Class B ordinary shares. Based on ourdual-class voting structure, in respect of matters requiring a shareholders’ vote, holders of Class A ordinary shares will be entitled to one vote per share, while holdersof Class B ordinary shares will be entitled to three votes per share. Due to the different voting powers associated with our two classes of ordinary shares, as of March5, 2021, our founder and Tencent beneficially owned an aggregate of 61.1% of the total voting power of our ordinary shares. See “Item 6. Directors, SeniorManagement and Employees—E. Share Ownership.” As a result, our founder and Tencent have substantial influence over our business, including significantcorporate actions such as mergers, consolidations, sales of all or substantially all of our assets, election of directors and other significant corporate actions. Pursuantto an irrevocable proxy between our founder and Tencent, Tencent has agreed to appoint our founder as its proxy with respect to all or a portion of the Class Bordinary shares held by Tencent on matters that are subject to the vote of shareholders. See “Item 10. Additional Information—B. Memorandum and Articles ofAssociation—Ordinary Shares—Classes of Ordinary Shares; Conversion” for more information. Further, under our amended and restated memorandum and articles ofassociation, any change of control of our company upon merger or consolidation, scheme of arrangement or other similar transactions, or the sale or exclusive licenseof all or substantially all of our intellectual property, will require the separate approval of holders of at least 80% of Class B ordinary shares then outstanding. See“Item 10. Additional Information—B. Memorandum and Articles of Association—Ordinary Shares—Special Approvals” for more information.37Table of ContentsThese shareholders may take actions that are not aligned with the interests of our other shareholders. This concentration of ownership as well as voting andapproval rights among holders of Class B ordinary shares may discourage, delay or prevent a change in control of our company, which could deprive our shareholdersof an opportunity to receive a premium for their shares as part of a sale of our company and may reduce the price of the ADSs. Certain actions may be taken even ifthey are opposed by our other shareholders. In addition, the significant concentration of share ownership may adversely affect the trading price of the ADSs due toinvestors’ perception that conflicts of interest may exist or arise. For more information regarding our principal shareholders and their affiliated entities, see “Item 6.Directors, Senior Management and Employees—E. Share Ownership.”The depositary for the ADSs will give us a discretionary proxy to vote our Class A ordinary shares underlying our ADSs at shareholders’ meetings if holders ofADSs do not give voting instructions to the depositary, except in limited circumstances, which could adversely affect the interests of such holders.Under the deposit agreement for the ADSs, the depositary will give us a discretionary proxy to vote our Class A ordinary shares underlying our ADSs atshareholders’ meetings if holders of ADSs do not give voting instructions to the depositary, unless:●we have failed to timely provide the depositary with our notice of meeting and related voting materials;●we have instructed the depositary that we do not wish a discretionary proxy to be given;●we have informed the depositary that there is substantial opposition as to a matter to be voted on at the meeting;●a matter to be voted on at the meeting would have a material adverse impact on shareholders; or●voting at the meeting is made on a show of hands.The effect of this discretionary proxy is that, if holders of ADSs fail to give voting instructions to the depositary, they cannot prevent our Class A ordinaryshares underlying our ADSs from being voted, absent the situations described above, and it may make it more difficult for shareholders to influence our management.Holders of our Class B ordinary shares are not subject to this discretionary proxy.We have granted, and may continue to grant, share incentives, which may result in increased share-based compensation expenses and dilution to shareholders.We adopted our 2009 Share Incentive Plan, last amended in July 2019, or the 2009 Plan, for the purpose of granting share-based compensation awards toofficers, employees, directors and other eligible persons to incentivize their performance and align their interests with ours. In February 2018, our board of directorsapproved automatic increases on January 1 of each of 2019, 2020, 2021 and 2022 of the maximum aggregate number of ordinary shares which may be issued under the2009 Plan by 5% of the total number of ordinary shares of all classes of the company outstanding on that day immediately before the increase, which may causefurther dilution to our shareholders. The current maximum aggregate number of ordinary shares which may be issued pursuant to all awards under the 2009 ShareIncentive Plan is 148,888,743. We are authorized to grant options, share appreciation rights, share awards of restricted shares and non-restricted shares, restrictedshare units and other types of awards the administrator of the 2009 Plan decides.38Table of ContentsWe account for compensation costs for all share options using a fair-value based method and recognize expenses in our consolidated statements ofoperations in accordance with U.S. GAAP. As of March 5, 2021, outstanding awards granted under the 2009 Plan consisted of (i) options to purchase 48,566,524 ClassA ordinary shares, (ii) 9,265,501 restricted Class A ordinary share units, and (iii) 194,926 share appreciation rights. As a result of our grants of awards under the 2009Plan, we incurred share-based compensation of US$58.1 million, US$117.1 million and US$290.2 million in 2018, 2019 and 2020, respectively. For more information onour share incentive plan, see “Item 6. Directors, Senior Management and Employees—B. Compensation—Share Incentive Plan.” We will incur additional share-basedcompensation expenses in the future as we continue to grant share-based incentives. We believe the granting of share-based compensation is of significantimportance to our ability to attract and retain key personnel and employees, and we will continue to grant share-based compensation to employees in the future. As aresult, our expenses associated with share-based compensation may increase, which may have an adverse effect on our results of operations.Because we do not expect to pay dividends in the foreseeable future, holders of ADSs must rely on price appreciation of our ADSs for return on their investment.We currently intend to retain most, if not all, of our available funds and any future earnings to fund the development and growth of our business. As a result,we do not expect to pay any cash dividends in the foreseeable future. Therefore, holders of ADSs should not rely on an investment in ADSs as a source for anyfuture dividend income.Our board of directors has complete discretion as to whether to distribute dividends. Even if our board of directors decides to declare and pay dividends, thetiming, amount and form of future dividends, if any, will depend on our future results of operations and cash flow, our capital requirements and surplus, the amount ofdistributions, if any, received by us from our subsidiaries, our financial condition, contractual restrictions and other factors deemed relevant by our board of directors.Accordingly, the return on the investment in our ADSs will likely depend entirely on any future price appreciation of our ADSs. There is no guarantee that our ADSswill appreciate in value or even maintain the price at which the holders purchased our ADSs. Holders of ADSs may not realize a return on their investment in ourADSs and may even lose their entire investment in our ADSs.Our memorandum and articles of association contain anti-takeover provisions and a dual-class voting structure that could have a material adverse effect on therights of holders of our Class A ordinary shares and our ADSs.Our memorandum and articles of association contain provisions to limit the ability of others to acquire control of our company or cause us to engage inchange-of-control transactions. These provisions could have the effect of depriving our shareholders of an opportunity to sell their shares at a premium overprevailing market prices by discouraging third parties from seeking to obtain control of our company in a tender offer or similar transaction. Our memorandum andarticles of association also contain a dual-class voting structure that gives disproportionate voting power to the Class B ordinary shares held by our founder, Forrestarticles of association also contain a dual-class voting structure that gives disproportionate voting power to the Class B ordinary shares held by our founder, ForrestXiaodong Li, and Tencent and their respective affiliates. As of March 5, 2021, our founder and Tencent beneficially owned an aggregate of 61.1% of the total votingpower of our ordinary shares. See “Item 6. Directors, Senior Management and Employees—E. Share Ownership.” In addition, our board of directors has the authority,without further action by our shareholders, to issue preferred shares in one or more series and to fix their designations, powers, preferences, privileges, and relativeparticipating, optional or special rights and the qualifications, limitations or restrictions, including dividend rights, conversion rights, voting rights (other than to issueadditional supervoting shares, which would require the consent of holders of Class B ordinary shares), terms of redemption and liquidation preferences, any or all ofwhich may be greater than the rights associated with our ordinary shares, in the form of ADS or otherwise. Preferred shares could be issued quickly with termscalculated to delay or prevent a change in control of our company or make removal of management more difficult. If our board of directors decides to issue preferredshares, the price of our ADSs may fall and the voting and other rights of the holders of our Class A ordinary shares and our ADSs may be materially and adverselyaffected.39Table of ContentsHolders of ADSs may face difficulties in protecting their interests, and their ability to protect their rights through U.S. courts may be limited, because we areincorporated under Cayman Islands law.We are an exempted company incorporated under the laws of the Cayman Islands. Our corporate affairs are governed by our memorandum and articles ofassociation, the Companies Act (As Revised) of the Cayman Islands and the common law of the Cayman Islands. The rights of shareholders to take action against thedirectors, actions by minority shareholders and the fiduciary duties of our directors to us under Cayman Islands law are to a large extent governed by the common lawof the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as fromthe common law of England, the decisions of whose courts are of persuasive authority, but are not binding, on a court in the Cayman Islands. The rights of ourshareholders and the fiduciary duties of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedent insome jurisdictions in the United States. In particular, the Cayman Islands has a less developed body of securities laws than the United States. Some U.S. states, suchas Delaware, have more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands. In addition, Cayman Islands companies may nothave standing to initiate a shareholder derivative action in a federal court of the United States.Shareholders of Cayman Islands exempted companies like us have no general rights under Cayman Islands law to inspect corporate records or to obtaincopies of lists of shareholders of these companies. Our directors have discretion under our articles of association to determine whether or not, and under whatconditions, our corporate records may be inspected by our shareholders, but are not obliged to make them available to our shareholders. This may make it moredifficult for holders of ADSs to obtain the information needed to establish any facts necessary for a shareholder motion or to solicit proxies from other shareholders inconnection with a proxy contest.Certain corporate governance practices in the Cayman Islands, which is our home country, differ significantly from requirements for companies incorporatedin other jurisdictions such as the United States. To the extent we choose to follow home country practice with respect to corporate governance matters, ourshareholders may be afforded less protection than they otherwise would under rules and regulations applicable to U.S. domestic issuers.As a result of all of the above, our public shareholders may have more difficulty in protecting their interests in the face of actions taken by management,members of the board of directors or controlling shareholders than they would as public shareholders of a company incorporated in the United States.The voting rights of holders of ADSs are limited by the terms of the deposit agreement, and holders of ADSs may not be able to exercise their right to vote theirClass A ordinary shares.Holders of ADSs are only able to exercise the voting rights with respect to the underlying Class A ordinary shares in accordance with the provisions of thedeposit agreement. Holders of ADSs may not have the same voting rights as the holders of our Class A ordinary shares and may not receive voting materials in timeto be able to exercise the right to vote. Under the deposit agreement, holders of ADSs must vote by giving voting instructions to the depositary. If we ask forinstructions from the holders of ADSs, upon receipt of voting instructions from the holders of ADSs, the depositary will try to vote the underlying Class A ordinaryshares in accordance with these instructions. If we do not instruct the depositary to ask for instructions from the holders of ADSs, the depositary may still vote inaccordance with instructions given by the holders of ADSs, but it is not required to do so. Holders of ADSs are not able to directly exercise the right to vote withrespect to the underlying Class A ordinary shares unless holders of ADSs withdraw their Class A ordinary shares from the depositary and become a registered holderof such shares. When a general meeting is convened, holders of ADSs may not receive sufficient advance notice to withdraw their Class A ordinary shares to allowthem to vote with respect to any specific matter. If we ask for instructions from holders of ADSs, the depositary will notify holders of ADSs of the upcoming vote andwill arrange to deliver our voting materials to holders of ADSs. We have agreed to give the depositary prior notice of shareholder meetings as far in advance of themeeting date as practicable. Nevertheless, we cannot assure you that holders of ADSs will receive the voting materials in time to ensure that holders of ADSs caninstruct the depositary to vote the Class A ordinary shares underlying their ADSs. In addition, the depositary and its agents are not responsible for failing to carry outvoting instructions or for their manner of carrying out voting instructions. This means that holders of ADSs may not be able to exercise the right to vote and mayhave no legal remedy if the Class A ordinary shares underlying our ADSs are not voted as they requested.40Table of ContentsHolders of ADSs may be subject to limitations on the transfer of their ADSs.Our ADSs are transferable on the books of the depositary. The depositary may refuse to deliver, transfer or register transfers of ADSs generally when ourshare register or the books of the depositary are closed, or at any time if we or the depositary thinks it is advisable to do so because of any requirement of law or ofany government or governmental body, or under any provision of the deposit agreement, or for any other reason.We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions applicable todomestic public companies in the United States.Because we are a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the securities rules and regulations in the UnitedStates that are applicable to U.S. domestic issuers, including: (i) the rules under the Exchange Act requiring the filing of quarterly reports on Form 10-Q or currentreports on Form 8-K with the SEC; (ii) the sections of the Exchange Act regulating the solicitation of proxies in respect of a security registered under the ExchangeAct; (iii) the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and “short swing” liability for insiderswho profit from certain trades; and (iv) the selective disclosure rules by issuers of material nonpublic information under Regulation FD.We are required to file an annual report on Form 20-F within four months of the end of each fiscal year. In addition, we publish our results on a quarterly basisthrough press releases. Press releases relating to financial results and material events are furnished to the SEC on Form 6-K. However, the information we are requiredto file with or furnish to the SEC will be less extensive and may be less timely compared with that required to be filed with the SEC by U.S. domestic issuers. As aresult, holders of ADSs may not be afforded the same protections or information, which would be made available to them, were they investing in a U.S. domesticissuer.We are subject to the corporate governance requirements of the New York Stock Exchange. However, New York Stock Exchange rules permit a foreign privateissuer like us to follow the corporate governance practices of our home country in lieu of certain New York Stock Exchange rules. Certain corporate governancepractices in the Cayman Islands, which is our home country, may differ significantly from the New York Stock Exchange corporate governance requirements. To theextent we choose to follow home country practice, our shareholders may be afforded less protection than they would otherwise enjoy under the New York StockExchange corporate governance listing standards applicable to U.S. domestic issuers.If we are a passive foreign investment company for United States federal income tax purposes for any taxable year, United States holders of ADSs or our ordinaryshares could be subject to adverse United States federal income tax consequences.Depending upon the value and the nature of our assets and the amount and nature of our income over time, we could be classified as a passive foreigninvestment company (“PFIC”) for U.S. federal income tax purposes.We will be classified as a PFIC in any taxable year if either: (i) 75% or more of our gross income for such year consists of certain types of “passive” income or (ii)50% or more of the value of our assets (generally determined on the basis of a quarterly average) during such year produce or are held for the production of passiveincome. Passive income generally includes dividends, interest, royalties, rents, annuities, net gains from the sale or exchange of property producing such income andnet foreign currency gains. For this purpose, cash is generally categorized as a passive asset and the company’s unbooked intangibles associated with activebusiness activity are taken into account as a non-passive asset. We will be treated as owning our proportionate share of the assets and earning our proportionateshare of the income of any other corporation in which we own (or are deemed to own), directly or indirectly, 25% or more (by value) of the stock. In addition, althoughthe law in this regard is not entirely clear, we treat our VIEs and each of their subsidiaries as being owned by us for United States federal income tax purposes. As apublicly traded foreign corporation we intend for this purpose to treat the aggregate fair market value of our gross assets as being equal to the aggregate value of ouroutstanding stock (“market capitalization”) plus the total amount of our liabilities and to treat the excess of the fair market value of our assets over their book value asa non-passive asset to the extent attributable to our non-passive income. Because we currently hold, and expect to continue to hold, a substantial amount of cash andcash equivalents and other passive assets used in our business, and because the value of our gross assets is likely to be determined in large part by reference to ourmarket capitalization, we would likely become a PFIC for a given taxable year if the market price of the ADSs or Class A ordinary shares were to decrease significantly.The application of the PFIC rules is subject to uncertainty in several respects, and we must make a separate determination after the close of each taxable year as towhether we were a PFIC for such year. If we are a PFIC for any taxable year during which a U.S. investor held the ADSs or Class A ordinary shares, the U.S. investormay be subject to increased U.S. federal income tax liability and to additional reporting obligations. We do not intend to provide the information necessary for the U.S.investor to make a qualified electing fund election with respect to the ADSs or Class A ordinary shares. See “Item 10. Additional Information—E. Taxation—UnitedStates Federal Income Tax Considerations—Passive Foreign Investment Company Rules.”41Table of ContentsBased on our income and assets, and the value of the ADSs, we do not believe that we were a PFIC, for U.S. federal income tax purposes, for the taxable yearended December 31, 2020, and do not anticipate becoming a PFIC for the current taxable year or for the foreseeable future. Nevertheless, because PFIC status is afactual determination made annually after the close of each taxable year on the basis of the composition of our income and assets, there can be no assurance that wewill not be a PFIC for the current taxable year or any future taxable year.ITEM 4.INFORMATION ON THE COMPANYA.History and Development of the CompanyOn May 8, 2009, we incorporated Garena Interactive Holding Limited, our holding company, as a limited liability company in the Cayman Islands. On April 8,2017, we changed our company name from Garena Interactive Holding Limited to Sea Limited.Sea Limited is a holding company that does not have substantive operations. We conduct our businesses through our subsidiaries and consolidatedaffiliated entities.We began our digital entertainment business at our inception in May 2009, and by 2020, we had expanded our local game operations to cover Indonesia,Taiwan, Vietnam, Thailand, the Philippines, Malaysia, Singapore and Latin America. Our self-developed game Free Fire is also currently available in more than 130markets globally.We launched our e-commerce platform, Shopee, in Indonesia, Taiwan, Vietnam, Thailand, the Philippines, Malaysia and Singapore in June and early July 2015,in Brazil in the fourth quarter of 2019, and in Mexico in the first quarter of 2021.We launched our digital financial services platform in Vietnam in April 2014 and in Thailand in June 2014. In the fourth quarter of 2019, we introducedSeaMoney as the overall brand for our digital financial services business.On October 20, 2017, we completed our initial public offering and listed our ADSs on the New York Stock Exchange under the symbol “SE.” In connectionwith our initial public offering, we issued 65,954,538 ADSs (including a partial exercise by the underwriters of their over-allotment option for 6,994,538 ADSs) atUS$15.00 per ADS for total gross proceeds of approximately US$989.3 million. In March 2019, we completed an equity follow-on offering of 69,000,000 ADSs(including a full exercise by the underwriters of their over-allotment option) at US$22.50 per ADS for total gross proceeds of over US$1.5 billion. In December 2020, wecompleted another equity follow-on offering of 15,180,000 ADSs (including a full exercise by the underwriters of their over-allotment option) at US$195.00 per ADS fortotal gross proceeds of approximately US$3.0 billion.In June 2018, we completed an offering of 2.25% convertible senior notes in an aggregate principal amount of US$575 million. In November 2019, wecompleted an offering of 1.00% convertible senior notes in an aggregate principal amount of US$1,150 million. In May 2020, we completed an offering of 2.375%convertible senior notes in an aggregate principal amount of US$1,150 million. These convertible notes were offered to qualified institutional buyers pursuant to Rule144A under the Securities Act, and certain non-U.S. persons in compliance with Regulation S under the Securities Act. The 2023 and 2024 convertible notes willmature on the fifth anniversary of their respective issuance dates, and the 2025 convertible notes will mature six months after the fifth anniversary of its issuance date.See “Item 5. Operating And Financial Review And Prospects—B. Liquidity and Capital Resources—Convertible Notes.”Our principal executive offices are located at 1 Fusionopolis Place, #17-10, Galaxis, Singapore 138522. Our telephone number at this address is +65 6270-8100.Our registered office in the Cayman Islands is at the offices of Maples Corporate Services Limited at PO Box 309, Ugland House, Grand Cayman, KY1-1104, CaymanIslands. Our agent for service of process in the United States in connection with the registration statement on Form F-1 for our initial public offering is Cogency GlobalInc., located at 122 East 42nd Street, 18th Floor New York, N.Y. 10168. Our agent for service of process in the United States in connection with the registrationstatement on Form F-3 is Puglisi & Associates, located at 850 Library Avenue, Suite 204, Newark, Delaware 19711. Our website is www.sea.com.42Table of ContentsB.Business OverviewOur MissionOur mission is to better the lives of the consumers and small businesses with technology.Our Beliefs and ValuesWe have Three Core Beliefs:●Our people define us. Sea shall be a place where talented people thrive at scale, enjoy freedom of ideas and achieve the unimaginable. It shall be amagnet for the smartest, the most creative and the most driven.●Our products and services differentiate us. We aspire to better every life we touch and make the world an ever more connected community throughinnovative products and services.●Our institution will outlast us. We strive to build an institution that will last for generations and evolve with time, and that is founded upon our corevalues.These Five Core Values are Sea’s foundation:●We serve. Our customers are the sole arbiter of the value of our products and services. We strive to meet unmet needs and serve the underserved.●We adapt. Rapid change is the only constant in the digital age of ours. We embrace change, celebrate it and always strive to be a thought leader thatinfluences it.●We run. We are in a constant race to success while grappling with rapidly shifting forces. We move faster, better and with more urgency every day.●We commit. Our work is our commitment. We commit to our values, institution, customers and partners. We commit to each other. Above all, we committo doing the best we can and being the best we are.●We stay humble. We have traveled a long way from our humble beginning and yet, we never lose our humility in our continual quest for greater heights.Together, our Three Core Beliefs and Five Core Values form a consistent mindset which we believe is both a practical recipe for long-term organizationalsustainability and also a deeper philosophy for how we want to live our lives. They are a guide for the kind of people we hire and develop, as well as a roadmap forhow we interact with our customers, our business partners, and our broader stakeholders. Ultimately, they are our compass: whenever we are faced with a decision, wealways ask ourselves which alternative is most authentic to these Beliefs and Values.OverviewSea has developed an integrated platform consisting of digital entertainment, e-commerce, and digital financial services, each localized to meet the uniquecharacteristics of our markets. Our seven markets in Southeast Asia and Taiwan were estimated to have 608.1 million people and a GDP of US$3.6 trillion in 2020according to the IMF World Economic Outlook Database. Southeast Asia and Taiwan region is also one of the world’s fastest growing regions based on per capitaGDP and, moreover, at the early stages of internet penetration. In addition, the Latin America region (including the Caribbean) was estimated to have 637.1 millionpeople and a GDP of US$4.2 trillion in 2020 according to the IMF World Economic Outlook Database. Many of our global markets are experiencing a generationaltransition to the new digital economy, with digital inclusion bringing consumers ever more closely to each other and online services, by leading internet businessmodels such as our own. Our culturally rich and diverse markets observe a rise in traditionally underserved digital consumers, who require dedicated focus, resources,and respective local market knowledge.43Table of ContentsSea operates three key businesses—Garena, Shopee, and SeaMoney:●Our digital entertainment business, Garena, is a global game developer and publisher. Garena provides users with access to popular and engaging mobileand PC online games that we develop, curate and localize for each market. Garena also exclusively licenses and publishes games developed by thirdparties. In addition, Garena provides access to other entertainment content, such as livestreaming of online gameplay, as well as social features, such asuser chat and online forums. We believe we are the leader in esports in Southeast Asia, Taiwan and Brazil, which strengthens our game ecosystem andincreases user engagement.●Our Shopee e-commerce platform was the largest e-commerce platform in our region in 2020 by GMV and total orders, according to Frost & Sullivan.Since its inception, Shopee has adopted a mobile-first approach and is a highly scalable marketplace platform that connects buyers and sellers. Shopeeprovides users with a convenient, safe and trusted shopping environment that is supported by integrated payment, logistics, fulfillment, and othervalue-added services. Our users enjoy the social nature of Shopee’s platform, where users can follow, rate, play micro-games with one another and easilybrowse for discovery to enhance their retail experience. We also empower sellers with various tools and support such as livestreaming and other value-added services for them to better engage with their buyers. We monetize Shopee mainly by offering sellers paid advertising services, chargingtransaction-based fees, and charging for certain value-added services. We also purchase products from manufacturers and third parties and sell themdirectly to buyers on our Shopee platform.●Our SeaMoney business is a leading digital financial services provider in our region in 2020, according to the International Data Corporation. SeaMoneycurrently offers mobile wallet services, payment processing, credit related digital financial offerings, and other financial products. These services andproducts are offered in various markets in Southeast Asia under AirPay, ShopeePay, SPayLater, and other digital financial services brands.Each of our businesses provides a distinct and compelling value proposition to our users, and each also exhibits strong virtuous cycle dynamics, which webelieve support our leadership position and provide a strong foundation for continued growth while creating barriers to entry for our competitors in our markets.We have achieved significant scale and growth since our founding. Our total revenue increased from US$827.0 million in 2018 to US$4,375.7 million in 2020, aCAGR of 130.0%. We had gross profit of US$14.8 million, US$604.9 million and US$1,348.9 million in 2018, 2019 and 2020, respectively. We incurred net losses ofUS$961.0 million, US$1,457.7 million and US$1,624.2 million in 2018, 2019 and 2020, respectively, primarily due to our investments in expanding our businesses, inparticular our e-commerce and digital financial services businesses. See “Item 5. Operating and Financial Review and Prospects—A. Operating Results—SegmentReporting” and “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Description of Certain Statement of Operations Items—Revenue” fora breakdown of our total revenues by category of activity and geographic market for each of the last three financial years.Our BusinessesGarena Digital Entertainment BusinessGarena, our digital entertainment business, primarily focuses on offering mobile and PC online games and developing mobile games for the global markets.We began our digital entertainment business at our inception in 2009. We offer our users easy access to highly engaging and localized content online that wedevelop or license, as well as organize and sponsor exciting game activities online and offline. We focus on game development, curation, localization, operation,distribution, monetization, and payments, as well as user community building and esports activities. We also provide access to other entertainment content, such aslivestreaming of gameplay as well as social features, such as user chat and online forums.44Table of ContentsOur GamesOur games consist of self-developed game and games licensed from third party developers. We offer immersive games covering some of the most popularand engaging genres, such as battle royale games; multiplayer online battle arenas, or MOBAs; action role-playing games, or action RPGs; massively multiplayeronline role-playing games, or MMORPGs; racing games and sports games. In most of these games, users play online in a virtual environment existing on networkgame servers that connect a large number of players simultaneously to interact with each other within the games.Mobile games have gained popularity in our markets and our mobile game business has seen rapid growth over the past several years. In December 2017, welaunched the first game that we developed entirely in-house, Free Fire, a mobile game of the battle royale genre. Free Fire has enabled us to grow globally beyond ourtraditional markets in Southeast Asia and Taiwan. It is currently available on the Google Play and iOS App Stores in more than 130 markets. We plan to continue toexpand our game development capabilities. In addition, we are the exclusive operator of Arena of Valor, a mobile MOBA game developed by Tencent in collaborationwith us, in our region, which has become one of the most popular games in these markets.Game PlayersWe have a large and active user base for our online game business. The table below sets forth certain of our operating metrics for the periods indicated. For the Three Months Ended March 31, 2020 June 30, 2020 September 30, 2020 December 31, 2020 (millions) Game QAUs 402.1 499.8 572.4 610.6 Game QPUs 35.7 49.9 65.3 73.1 Our large user base as well as the team and social aspects of our games keep our game players engaged and also creates powerful network effects that furtherattract users to our games, resulting in a high barrier to entry for our competitors.In-House Game DevelopmentWe develop mobile games that cater to the demands of highly diverse markets across the globe. Our game development capabilities are particularlystrengthened by our experience and big data collected from running our self-developed game in global markets. Our in-house game development studios now havemore than 750 developers focused on enhancing Free Fire gameplay and building out our pipeline of self-developed games.In January 2020, we acquired Phoenix Labs, an independent games development studio based in Canada. The acquisition is expected to further bolsterGarena’s in-house content creation capabilities.Third-Party Games PublishingWe also curate top third-party game content globally for publishing in our markets. Our market leadership and success in operating and customizing gamesfor our local game players have helped us forge deep relationships with key international game developers in different parts of the world. Game developers choose usto operate their games in our markets because of our leading market position, strong reputation in the online game community, and successful track record ofoperating and popularizing games in our markets. We are therefore able to source high-quality games from world class developers, many of whom work with us as theirexclusive partner in our markets. We rely on our local knowledge and years of game operating experience to select games that will match changing user needs andgenre preferences. We also believe that our large user base contributes to a virtuous cycle. As we attract more high-quality game developers to partner with us, we areable to attract more users with a larger volume of high-quality content.45Table of ContentsWe provide our game developer-partners access to a large user base in highly diverse markets across the globe, enabling our games to quickly becomepopular. Our services to third party game developers include game launch and hosting, localization, marketing, distribution, monetization, integrated paymentinfrastructure, including access to our SeaMoney platform, and online and offline community building activities.In particular, we localize licensed games to adapt to each market. We work with game developers to translate game content into local languages, revise gamedesign to suit local preferences, and meet regulatory requirements for each jurisdiction. We also develop exclusive local content for particular markets to enhancegame attractiveness to local audiences. Our content localization efforts entail continuing feedback loops with developers throughout the life of the games we operate.Monetization and PaymentsOur game monetization model is a “freemium” model that allows our users to download and play fully functional games for free. We generate revenueprimarily by selling our game players in-game items, which include in-game virtual items such as digital representations of functional or decorative items, as well asseason passes. Digital representation of functional or decorative items includes clothing, weaponry or equipment, which players can purchase and utilize within thegame environment to enhance their gameplay experience. Players that purchase season passes can receive additional in-game virtual items upon satisfying certainconditions. Players who choose to purchase in-game items benefit from being able to accelerate progress, enhance social interactions, and enjoy a more personalizedgame playing experience.We offer multiple methods for users to purchase in-game items, including through our SeaMoney platform, the Google Play Store and the iOS App Storepayment gateways, other online payment gateways, bank transfers, credit cards, debit cards, mobile phone billing, and prepaid cards, including our own prepaid cards,which are sold through agents.Esports and Community BuildingWe believe that Garena is a leading catalyst of the growth of esports in our markets as we organize hundreds of esports events annually and operate thelargest mobile-game professional league in Southeast Asia, Taiwan and Brazil. We organize esports competitions that range in size from relatively small-scale localtournaments to widely publicized and promoted global esports events that rival the size of popular professional athletic events.Some of our users have become full-time professional esports athletes that compete for prize money in tournaments and sponsorships from largecorporations that often also sponsor professional sports. Free Fire’s large and growing esports and streaming community is another key pillar of our user engagementstrategy. The game was also named the Esports Mobile Game of the Year at the Esports Awards 2020. As a result, we believe our esports operations generate stronguser engagement for our games as well as promote user acquisition and retention.MarketingWe devise and execute marketing plans tailored for each market. We market our games through a combination of online advertisement, outdoor and printadvertisements, television commercials, influencer partnerships as well as social media platforms and other online forums.Shopee E-commerce PlatformOur Shopee e-commerce platform is a mobile-centric, social-focused marketplace with integrated payment and logistics infrastructure and comprehensiveseller services. It is a highly scalable marketplace platform that provides users with a convenient, safe, and trusted shopping environment. Shopee was the largest e-commerce platform in our region in 2020 by GMV and total orders, according to Frost & Sullivan.46Table of ContentsShopee provides users with a convenient, safe, and trusted shopping environment that is supported by integrated payment, logistics, fulfilment, and othervalue-added services. We monetize Shopee mainly by offering sellers paid advertising services, charging transaction-based fees, and charging for certain value-addedservices.Shopee’s marketplace model allows it to scale rapidly. In addition, we introduce many social and gamification elements into Shopee which we believe enablesus to increase organic user acquisition, user retention and user time spent on our platform. The table below sets forth certain of our operating metrics for the periodsindicated. For the Three Months Ended March 31, 2020 June 30, 2020 September 30, 2020 December 31, 2020 (billions) GMV (US$) 6.2 8.0 9.3 11.9 Orders 0.4 0.6 0.7 1.0 While we primarily operate as a marketplace, we also purchase some products from manufacturers or third parties directly and sell on our Shopee platformunder our official store to meet buyers' demand. Bulk purchasing and direct product sales for specific product categories also enable us to offer better productassortment to our buyers.Our BuyersOur buyers are individuals and households who mainly purchase from sellers that are within the same market. Shopee also enables buyers to make cross-border purchases from selected sellers in China, Taiwan, South Korea, Japan, Indonesia and other markets in Asia.Our SellersShopee sellers are primarily small and medium businesses, brands, large retailers as well as individuals, who view Shopee as an efficient and reliable way ofmanaging the selling process while maximizing customer needs. On Shopee, each seller has an online storefront on which they list their products, communicate withbuyers, and complete transactions. Our Shopee Mall hosts brands and large retailers prominently featuring their distinct logos, and offers a premium shoppingexperience to a broad base of buyers.E-commerce Platform OperationsProduct Category FocusWe use targeted seller engagement and product placement to attract sellers and bring products to our platform. We leverage our deep understanding of localmarket conditions and user preferences to prioritize product categories that we believe have higher realization rates and profitability for our sellers. We currently offera general merchandise platform focused on long-tail high-margin categories, such as fashion, health and beauty, home and living, and baby products. Meanwhile, wecontinue to focus on expanding categories to include an increasingly diverse range of products.Seller Support and Service by ShopeeWe offer strong support to sellers on the Shopee platform through large on-the-ground teams with deep local knowledge. Our local teams also offer fast andlocalized operational and technological assistance in using business management tools. Moreover, an extensive network of logistics and payment solution providersare integrated into the platform to provide users with a one-stop solution. We also offer sellers integrated payment, logistics, fulfillment, and other value-addedservices.Under “Service by Shopee,” we offer a range of value-added services to sellers, including inventory management, online store operations, and fulfillmentservices. Depending on sellers’ needs and preferences, we may help sellers manage inventory and fulfill orders from warehouses leased and operated by us, operatestores on our platform, or purchase products from sellers for reselling on our platform. “Service by Shopee” is currently available to sellers in our Southeast Asia andTaiwan markets.We take the user experience beyond a traditional online marketplace environment, making online shopping truly seamless. We believe that these efforts helpto streamline the whole online business operation from store setup to selling, inventory and revenue management, delivery and payment collection for our sellers,empowering them to achieve greater success in their commercial activities.47Table of ContentsBuyer ProtectionWe focus on creating a secure and reliable shopping environment for our buyers and have developed robust consumer protection policies and procedures,including the following measures:●Seller Verification. Everyone that registers to become a seller on the Shopee platform is subject to our verification process and must agree to ourstandard terms of service before opening a seller account.●Listing Screening. Shopee has adopted a set of policies and procedures to prevent and remove listings of inappropriate or illegal goods and to screenout repeat offenders. All listings on the Shopee platform first undergo automated screenings against a list of illegal product names, categories anddescriptions. We have developed this list based on local regulations and it is frequently updated by our local teams to reflect the latest regulatoryrequirements. Listings posted by sellers which are deemed to be of high risk based on our screening will not be visible on our platform until they aremanually cleared by our operations and compliance teams. Listings that are not cleared due to regulatory violations or other violations of our terms ofuse will be permanently removed, and the seller will not be able to edit or re-submit the same product listing. We may suspend or remove accounts thatrepeatedly submit illegal or inappropriate listings. Moreover, users and other third parties may report listings that they believe to be illegal, inappropriateor offensive for our further review.●Shopee Guarantee. We provide “Shopee Guarantee,” a free service to facilitate transactions on the Shopee platform. Under Shopee Guarantee, we holdpayments made by buyers in certain designated Shopee Guarantee account held by us until the ordered products are received or deemed to have beenreceived by the buyer. After this, we release the payment to the seller. If the purchased products are never delivered to or received by the buyer, we willreturn the funds to them. Shopee Guarantee is available for all transactions executed through the Shopee platform. We believe that Shopee Guaranteereduces settlement risks and improves transaction efficiency and security.●Dispute Resolution. We have on-the-ground teams to help resolve disputes between buyers and sellers. In the case of a dispute, a buyer may submitsupporting evidence through our dispute resolution system and seek compensation from the seller.Shopee Communication ToolThe Shopee platform offers a live chat function enabling real-time communication between buyers and sellers. Buyers typically use the chat function toclarify product-related details, while sellers typically use the function to confirm payment and delivery information. We believe this communication tool hassignificantly improved the efficiency and security of transactions and the overall shopping experience.Integrated Logistics ServicesLogistics is critical for the development of e-commerce in our markets since many of them have terrain that is difficult to navigate and underdevelopedinfrastructure. The logistics service providers which we cooperate with include some of the largest and most reliable service providers in our markets. Because of thelarge number of transactions from our platform, we are typically able to negotiate preferred terms with these service providers for our users. Although sellers are notrequired to use these service providers, they often choose to do so due to the reliable service quality and favorable pricing offered through us. We also provide last-mile delivery services, Shopee Xpress, to complement the existing capacities of the third-party logistics service providers in select metro areas of our markets. Incertain markets, we have made strategic investments into local logistics partners in order to enhance our logistics services offerings to both buyers and sellers.Moreover, on our Shopee platform, sellers and buyers can track the delivery status of their packages and provide feedback on logistics services. We evaluateand provide feedback to logistics service providers to improve the level of services provided to our users, including average delivery times.48Table of ContentsPayment on ShopeeAs transactions on Shopee are protected by Shopee Guarantee, buyers make payments to Shopee’s designated Shopee Guarantee account which are thenreleased by Shopee to the sellers upon buyers’ receipt or deemed receipt of the goods. Depending on the market, sellers and buyers can choose from a number ofpayment options to complete transactions on Shopee, including our own mobile wallet services, credit cards, bank transfers through ATM or over the internet, andcash payments upon delivery or at designated convenience stores. Shopee has already integrated its payment processing system with SeaMoney’s paymentinfrastructure in almost all of our markets.Marketing and PromotionsWe undertake both online and offline marketing efforts to maximize our brand awareness and attract new users. Our online efforts mainly include onlineadvertisements through major web portals, search engines, and social media. Our online advertisements focus on promoting campaigns such as Shopee 9.9 SuperShopping Day, 11.11 Big Sale, and 12.12 Birthday Sale as well as attracting new users by promoting awareness of the convenience, cost effectiveness, and reliability ofe-commerce and Shopee. Our offline marketing efforts include display advertisements in locations with high traffic and are carried out by our local teams. Moreover,we conduct targeted promotional campaigns to incentivize buyers and sellers to use our platform. We believe that our investment in marketing and promotions hascontributed to our GMV and market share growth, which in turn strengthens our pricing power and enables us to monetize at higher rates.Social and Gamification FeaturesAs part of our strategy to enhance user engagement and social activity on the Shopee platform, we have introduced a number of innovative social andgamification features on Shopee, such as “Shopee Coins,” “Shopee Live,” “Shopee Games” and “Shopee Feed.” We believe these features allows us to increase ourorganic user acquisition.Users can win “Shopee Coins” from making purchases, playing mini-games and participating in campaign activities and then use Shopee Coins to offset thecost of purchase from eligible sellers. Users may also earn additional Shopee Coins by inviting their friends to participate, which we believe further encourages socialactivity on the platform. “Shopee Live” allows buyers to watch livestreaming by sellers from their mobile phones in which sellers may promote their goods or conductreal-time engagement with buyers for potential sales or brand-building. “Shopee Games” are a variety of mini games that promote in-app interactions between fellowusers through achieving individual or group rewards. This feature increases user engagement, interactions, and promotes positive user experiences on the platform.“Shopee Feed” allows users to continuously scroll through a lively ecosystem of multimedia listings where they can “like” or “comment” on as they discover popularitems based on platform trends, new inventory from “followed” sellers, and their previous browsing categories.MonetizationWe have been focusing on building the scale and liquidity of our marketplace, and will increasingly focus on monetization as our GMV and market sharecontinue to grow. We monetize Shopee mainly by offering sellers paid advertising services, charging transaction-based fees, and charging for certain value-addedservices.Revenue from Shopee also include revenue of products sold by us. We purchase products from manufacturers or third parties directly and sell on our Shopeeplatform under our official store to meet buyers' demand for such products.SeaMoney Digital Financial Services BusinessSeaMoney, our digital financial services business, is a leading digital financial services provider in our region in 2020, according to the International DataCorporation. We began to offer digital financial services in 2014. In the fourth quarter of 2019, we introduced SeaMoney as the overall brand for our digital financialservices business. SeaMoney currently offers mobile wallet services, payment processing, credit related digital financial offerings, and other financial products. Theseservices and products are offered in various markets in Southeast Asia under AirPay, ShopeePay, SPayLater, and other digital financial services brands.49Table of ContentsThe table below sets forth certain operating metrics of our digital financial services business for the periods indicated. For the Three Months Ended March 31, 2020 June 30, 2020 September 30, 2020 December 31, 2020 Digital Financial Services Mobile wallet total payment volume (US$ in billions) 1.1 1.6 2.2 2.9 Mobile wallet QPUs (in millions) 10.5 15.6 17.9 23.2 Throughout 2020, we continued to work on further integrating the mobile wallet services of SeaMoney with our Shopee platform across different markets, topromote efficient growth of SeaMoney and to reduce payment friction for Shopee users. Moreover, we have been expanding the use cases of our mobile walletservices outside of Sea’s platforms to include other online and offline merchants, along with a variety of third-party use cases. Third-party merchants currently includetelecommunications companies, online and offline entertainment service providers such as game operators or app stores, movie theaters, concert/event venues, utilityservice providers, food delivery service providers, credit card issuers, banks, insurance companies, and car leasing companies. As we increase the number and type ofmerchants on the SeaMoney platform, we are able to offer mobile payment solutions for a wider range of products and services to meet the daily needs of our usersand attract more users to the platform.Leveraging on Shopee’s organic user base, wealth of high-quality data, strong on-platform demand and operational efficiency, we have also piloted consumercredit programs under SPayLater to build up our credit assessment capabilities.In addition, SeaMoney provides payment processing services to Shopee in almost all of our markets, which, depending on the operational arrangement ineach specific market, may include payments from buyers to Shopee accounts under Shopee Guarantee as well as outgoing payments from Shopee accounts to Shopeeseller accounts that are operationally handled by SeaMoney.We mainly monetize our digital financial services business by charging commissions to third-party merchants with respect to our mobile wallet services, andby earning interests from borrowers with respect to our consumer credit business. Marketing of our SeaMoney products and services have been done through offlineadvertisements and in-app advertisements through our Shopee apps.The financial services industry is heavily regulated and we are required to obtain and maintain certain licenses in the jurisdictions in which we providefinancial services. As of the date of this annual report, we have obtained the licenses and governmental approvals necessary to provide electronic money services inIndonesia, Vietnam, Thailand, the Philippines and Malaysia, and to provide loans in Indonesia, Thailand, the Philippines and Malaysia. As we expand our digitalfinancial services business to additional markets, we may need to obtain additional licenses and permits in order to comply with local laws. See “—Regulation” and“Item 3. Key Information—D. Risk Factors—Business and Operational Related Risks—Risks Applicable Across Multiple Businesses—We are subject to extensiveand changing laws and government regulations across our business.”In December 2020, our wholly-owned subsidiary in Singapore was selected for the award of a digital full bank license in Singapore. We also acquired acontrolling interest in a local commercial bank in Indonesia in 2020. For further details, see “Item 3. Key Information—D. Risk Factors—Business and OperationalRelated Risks—Risks Related to Our Digital Financial Services Business— Our banking business may subject us to additional material business, operational, financial,legal and compliance requirements and risks.”Our TechnologyTechnology is key to our success as it enables us to operate our business more efficiently, improves the user experience and supports innovation. Ourtechnology team is composed of highly skilled engineers, computer scientists and technicians whose expertise span a wide range of areas. We have an engineeringand data analysis team engaged in building our technology platform and developing new online and mobile products.50Table of ContentsNetwork InfrastructureOur network infrastructure utilizes our private data centers and cloud services that are linked with high-speed networks. We have established local serversand infrastructure in many of our key markets to ensure faster connections and a seamless user experience. We have developed our architecture to work effectively ina flexible cloud environment that has a high degree of elasticity. Our automatic provisioning tools have enabled us to increase our storage and computing capacity in ashort period of time in response to increasing demand for online game services. We operate at a scale that routinely delivers massive amounts of content to tens ofmillions of users across our platforms. We believe that this will represent the largest concurrent user capacity of all of our games. Our technology architecture hasbeen designed to scale horizontally to accommodate the large amounts of data our network generates. This allows our distribution, operations, and payments teams tocooperate with each other and the product and research and development teams to design, deliver and share innovations.Our proprietary network application protocols also ensure fast and reliable mobile communications under different network conditions. The aim is to providea consistent user experience across different mobile and PC devices, operating systems, carriers, and network environments.Data AnalyticsOur infrastructure enables us to store and process large datasets and deploy our services to our users across a wide region. As our user base grows and thelevel of engagement and activities on our platforms increase, we will continue to expand our technology infrastructure to maintain and improve the quality of our userexperience.We process large volumes of data related to gameplay, e-commerce, and payment processing. Our proprietary multi-dimensional data analysis engine collatesand structures our data in a variety of ways for use in ad-hoc analysis, real time in-line analysis, and standardized reports. Our data analysis generates visualizedresults that can be filtered according to numerous performance metrics, enabling us to locate key performance drivers and non-performing virtual items. Data analysisgenerates invaluable insights on user needs, preferences, and behaviors, through which we improve our services and user experience, enhance effectiveness of cross-promotions, and discover opportunities for improving user retention and increasing user life-time value. Moreover, our data science technology serves various typesof data-intensive computational needs, including high-volume batch processing and multi-variable and multi-dimensional real-time analytics. Data analysis as well astransaction, payment, and behavioral data science capabilities are used extensively in numerous applications such as search, online marketing on our marketplaces,and credit profiling and risk management of our consumer loan business. We also make available some of our data analysis to our Shopee sellers, allowing them toeasily review and analyze their selling histories to identify trends and efficiently manage their businesses through our system.Online GamesWe have developed a proprietary technology platform with strong data analysis capabilities that integrate and track every aspect of our online gamebusiness operations, including game redesign and localization, distribution, payment channel management, user research, virtual goods merchandizing, marketing,cross-promotion, game development and game services.We use sophisticated algorithms to determine the likelihood of user engagement with specific content recommendations and we use this data to match themost relevant content to each of our users based on the user’s profile and game play history. Moreover, our servers and the software development kit (SDK) modulesembedded in our mobile game applications jointly support various functions within our games, including analysis of user and game data, central management of useraccounts, account security, payment gateway connectivity, user communication, social connectivity, and cross-promotion functions.E-commerceWe believe Shopee is one of the largest and fastest mobile content delivery networks in our region. The technology underlying Shopee accelerates theloading of millions of product photographs and descriptions on web pages delivered to millions of users and offers them a fast and smooth mobile shoppingexperience.51Table of ContentsOur proprietary database management system is one of the largest database systems for mobile online transaction processing in our region. It runs onservers and can be scaled up to hundreds of nodes to achieve scalability. Moreover, it plays a critical role in supporting transaction processing in our marketplaces ina cost-efficient manner.We provide data to Shopee sellers on a real-time basis to enable them to better understand key trends to target and acquire customers. For buyers, we useour data to create a better shopping experience by personalizing search results and shopping recommendations. We also leverage our data to help our logisticspartners improve their fulfillment and delivery systems, processes, and resource allocation.Digital Financial ServicesWe strive to continually improve our digital financial services technology, including our mobile wallet and payment processing technology, to enhance thecustomer experience and to increase efficiency, reliability, and security. A substantial portion of our development efforts are focused on creating specialized softwarethat enhances our internet-based customer functionality and we have developed intuitive user interfaces, customer tools, transaction processing, database andnetwork applications that help our users to reliably and securely complete transactions on our sites.With a view to managing our incremental technology costs, our payment processing services rely on the same technological infrastructure as our onlinegames and e-commerce services, which is scalable and customizable. Our payment processing platform consists of a database, a processing system, and interfaces forconsumers, content providers, telecommunications service providers and distribution partners. The interfaces are connected to the processing system through secureprotocols, namely secure sockets layer (SSL), and transmission control protocol / internet protocol (TCP/IP). In order to ensure system security, we have implementedfirewalls to protect our internal network from unauthorized access, with a demilitarized zone (DMZ) to prevent any malicious attacks.Our integrated application programming interface (API) enables the content providers, telecommunications service providers and online merchants,respectively, to verify the authenticity of e-vouchers that we issue. We use a platform for global credit card payment processing and domestic alternate paymentprocessing.Customer ServiceWe have a dedicated customer service team. We believe our customer service team is well-trained in assisting our users with issues they encounter on ourplatforms, gathering feedback on how to improve our services and receiving user complaints and suggestions. Moreover, we have adopted systematic internalprocedures to quickly respond to and resolve customer complaints.Intellectual PropertyOur business is based significantly on the acquisition, creation, use, and protection of intellectual property. Some of the intellectual property is in the form ofsoftware codes, patented technology, and trade secrets that we license from game developers, or that we created to localize the games and to enable them to runproperly on multiple platforms. We also create audio-visual elements, including graphics, music, story lines, and interface designs, which are sometimes requiredduring the localization process. Free Fire, our self-developed game, is one of our key intellectual properties. Other forms of this intellectual property include thetechnology and know-how that we developed and use to operate our e-commerce and payment products.We believe the protection of our trademarks, copyrights, domain names, trade names, trade secrets, patents, and other proprietary rights is critical to ourbusiness and we protect our intellectual property rights in various jurisdictions by relying on local laws and contractual restrictions. More specifically, we rely on acombination of trademark, fair trade practice, copyright, and trade secret protection laws, as well as confidentiality procedures and contractual provisions, to protectour intellectual property rights. Moreover, we enter into confidentiality, proprietary rights assignment, non-compete, and non-assignment agreements with ouremployees, and have confidentiality arrangements with our business partners. We also actively engage in monitoring and enforcement activities with respect toinfringing uses of our intellectual property by third parties.52Table of ContentsWhile we actively take steps to protect our proprietary rights, such steps may not be adequate to prevent the infringement or misappropriation of theintellectual property created by or licensed to us. See “Item 3. Key Information—D. Risk Factors—Business and Operational Related Risks—Risks Applicable AcrossMultiple Businesses—We may be subject to intellectual property-related risks.” Also, we cannot be certain that the products and content on our platforms do not orwill not infringe on the valid patents, copyrights or other intellectual property rights held by third parties. We may be subject to legal proceedings and claims from timeto time relating to the intellectual property of others, as discussed in “Item 3. Key Information—D. Risk Factors—Business and Operational Related Risks—OtherOperational Risks—We may be subject to risks related to litigation and regulatory proceedings.”CompetitionEach of the online game, e-commerce, and digital financial service industries in our markets is highly fragmented. We face competition in each of our lines ofbusiness in each market where we operate. Some of our competitors may have greater access to capital markets, more financial and other resources, and a longeroperating history than we do.Online GamesWe compete on the basis of a number of factors, including user base, game portfolio, quality of user experience, brand awareness, and reputation,relationships with game developers and access to distribution and payment channels. Our competitors for publishing primarily include companies with a presence injust one or a few of our markets, as well as other global platforms and self-publishing game developers. Our competitors for game development include globaldevelopers.E-commerceWe face competition principally from regional players that operate across several markets and global players that expand into our markets by building localplatforms or making their existing platforms accessible to users in our markets. We also face competition from single-market players. We compete to attract, engage,and retain buyers based on the variety and value of products and services listed on our marketplaces, overall user experience and convenience, online communicationtools, integration with mobile and networking applications and tools, quality of mobile applications, and availability of payment settlement and logistics services. Wealso compete to attract and retain sellers based on the number and engagement of buyers, the effectiveness and value of the marketing services we offer, commissionrates, and the usefulness of the services we provide, including data and analytics for potential buyer targeting, cloud computing services, and the availability ofsupport services including payment settlement and logistics services.Digital Financial ServicesSeaMoney competes primarily with existing online and offline payment service providers, including, among others, other mobile wallet service providers.SeaMoney competes with these companies primarily on the basis of network size, transaction processing speed, convenience, accessibility, reliability, and price. Webelieve that strengths across the e-commerce and digital entertainment businesses position us very well to grow our digital financial businesses and SeaMoney has asignificant competitive advantage because of the strong demand in our markets for seamless convenient forms of mobile payments with the continued development ofthe digital economy in the region.SeasonalityOur revenue and other operating results may vary significantly from quarter to quarter due to a variety of factors, many of which are outside our control. Fora discussion of the factors that may contribute to fluctuations of our quarterly results, see “Item 3. Key Information—D. Risk Factors—Business and OperationalRisks—Risks Applicable Across Multiple Businesses—Our results of operations are subject to fluctuations.”RegulationThis section sets forth a summary of the significant regulations or requirements in the jurisdictions where we conduct our material business operations,namely Indonesia, Taiwan, Vietnam, Thailand and Singapore. The primary laws and regulations to which we are subject relate to foreign investment, dividenddistributions, foreign exchange controls, game operating, e-commerce, payment processing, mobile wallet, data protection, intellectual property rights, anti-moneylaundering and terrorism financing and employment and labor.53Table of ContentsIndonesiaRegulations on Foreign InvestmentThe Law No. 25 of 2007 regarding Investment issued on April 26, 2007 as amended by Law No. 11 of 2020 regarding Job Creation, or the Indonesia InvestmentLaw, states that all business sectors or business types are open to foreign investment, except certain lines of business that the Indonesian government has expresslyprohibited or restricted from foreign investment. Under the Indonesia Investment Law, foreign investors can own up to 100% of the equity in game distribution and e-commerce marketplace businesses in Indonesia. We have obtained the investment in-principle license and the business license required for foreign investmentcompanies engaging in game distribution and e-commerce marketplace businesses in Indonesia issued by the Indonesian Investment Coordinating Board. In addition,Indonesian investment laws render void any agreements containing statements by Indonesian shareholders that they hold shares in an Indonesian company for thebenefit of a foreign beneficiary.Regulations on the Use of RupiahOn June 28, 2011, the government of Indonesia enacted Law No. 7 of 2011 on Currency, or the Indonesia Currency Law, which took immediate effect.Furthermore, on March 31, 2015, Bank Indonesia enacted Bank Indonesia Regulation No. 17/3/PBI/2015 on the Mandatory Use of Indonesian Rupiah within theTerritory of the Republic of Indonesia, or the Indonesia Currency Law Implementation Regulations. Bank Indonesia also enacted Bank Indonesia Circular Letter No.17/11/DKSP on June 1, 2015 as the implementing guideline to the Indonesia Currency Law Implementation Regulations. The implementation rules of the IndonesiaCurrency Law require the use of Indonesian Rupiah for all transactions conducted within Indonesia, including transactions for payment, settlement of obligations andother financial transactions, except for certain exemptions provided under the Indonesia Currency Law Implementation Regulations. Failures to comply with anyprovisions under the Indonesia Currency Law Implementation Regulations may subject the person to administrative, criminal or monetary sanctions of up to IDR1billion (US$70,897).Regulations on Dividend DistributionsDividend distributions are regulated under Law No. 40 of 2007 on Limited Liability Companies as amended by Law No. 11 of 2020 regarding Job Creation, orthe Indonesia Companies Law. A decision to distribute a dividend needs to be made by a resolution of the shareholders at the annual or general meeting ofshareholders upon the recommendation of the board of directors of a limited liability company. A limited liability company may only declare dividends if it has positiveretained earnings at the end of a fiscal year. Furthermore, the Indonesia Companies Law allows a limited liability company to distribute interim dividends prior to theend of a financial year so long as it is permitted by its articles of association and provided that the interim dividend does not result in the limited liability company’snet assets becoming less than the total issued and paid-up capital and the compulsory reserves fund. Such distribution shall be determined by the limited liabilitycompany’s board of directors after being first approved by the board of commissioners. If, after the end of the relevant financial year, the limited liability company hassuffered a loss, any distributed interim dividends must be returned by the shareholders, and the board of directors and board of commissioners of the limited liabilitycompany will be jointly and severally responsible if the interim dividend is not returned. A limited liability company is required to reserve a certain amount from its netprofit each year as a reserve fund until such fund amounts to at least 20% of its issued and paid-up capital.Regulations on Foreign ExchangeIndonesia has limited foreign exchange controls. The Indonesian rupiah is generally freely convertible within or from Indonesia. The Indonesian InvestmentLaw stipulates that foreign investors are allowed to make capital contributions and repatriate dividends, profits and other income in foreign currency withoutobtaining prior approvals from governmental authorities and/or Bank Indonesia, the central bank of Indonesia. The conversion of foreign currency into Indonesianrupiah for capital contribution purposes does not require any governmental approvals.54Table of ContentsOn September 5, 2016, Bank Indonesia issued Bank Indonesia Regulation No. 18/18/PBI/2016 on the Foreign Exchange Transactions against Rupiah betweenBanks and Domestic Parties and Bank Indonesia Regulation No. 18/19/PBI/2016 on Foreign Exchange Transactions against Rupiah between Banks and ForeignParties, or the Indonesia Foreign Exchange Regulations. According to such regulations, a party wishing to convert Indonesian rupiah to foreign currency exceedingcertain thresholds set forth in the Indonesia Foreign Exchange Regulations is required to submit certain supporting documents to the bank handling the foreignexchange conversion, including the underlying transaction documents and a duly stamped statement confirming that the underlying transaction documents are validand that the foreign currency will only be used to settle the relevant payment obligations. For conversions not exceeding the threshold set forth in the IndonesiaForeign Exchange Regulations, the person only needs to declare in a duly stamped letter that its aggregate foreign currency purchases have not exceeded the monthlythreshold set forth in the Indonesian banking system.Regulations Relating to Game BusinessIf a game operating platform in Indonesia wishes to rate its games, it may refer to Regulation No. 11 of 2016 on Classifications of Electronic Interactive Games,or the Rating Regulation, promulgated by the Ministry of Communication, Information and Technology, or MOCIT. The Rating Regulation allows game developers,producers, or operators to self-rate the games that they have created, produced or published in Indonesia, regardless of whether such game has been rated in itscountry of origin. This self-rating will be evaluated by the Games Classifications Committee appointed by and reports to the MOCIT. The evaluation conducted by theGames Classifications Committee will be made based on reports from or information available to the public, periodically, or on a random basis.The Rating Regulation classifies games into five categories which are intended to guide parents and other users to choose games that are appropriate for theage group of the users. Based on the amount of sensitive content, games are classified into the following age-groups: over three years old, over seven years old, over13 years old, over 18 years old, and all ages. Games that have been rated by developers, producers or creators, will be included in the Recommended Games Registermaintained by the Directorate General of Information Technologies Applications under MOCIT, or DGITA. On the other hand, if a game contains pornographicmaterial, promotes gambling using real or virtual money, or contradicts prevailing laws, such game will not be rated and will not be included in the RecommendedGames Register. DGITA may, based on a recommendation from the Games Classifications Committee, adjust the rating of a game if the operator of the game fails to givean appropriate rating. In addition, such operator could face claims from the public should its rating be deemed to mislead users or parents, and DGITA may adjust therating accordingly. The games that have been classified are displayed on igrs.id, the official site maintained by DGITA.Regulations on E-commerceGeneral Regulation on E-CommerceOn November 25, 2019, the Indonesian government enacted Government Regulation No. 80 of 2019 on Commerce through Electronic Systems, or the E-commerce Regulation. This regulation governs not only the restrictions and requirements for e-commerce sellers, but also e-commerce platform providers andintermediary service providers. See below for more details about the liability of platform providers and intermediary service providers under the E-commerceRegulation. Further, this regulation also regulates, among others, e-contracts, online advertisements and personal data protection in the e-commerce sector. Thisregulation governs local e-commerce sellers, as well as foreign e-commerce sellers if they actively provide their services to Indonesian consumers. The implementingregulation of the E-commerce Regulation, the Ministry of Trade Regulation No. 50 of 2020 on the Requirements for Business Licensing, Advertising, Development,and Supervision of Businesses in Electronic Commerce further provides that a domestic e-commerce platform must obtain an e-commerce trade business license orSurat Izin Usaha Perdagangan Melalui Sistem Elektronik, while a local merchant must obtain a business license that is relevant to their business activities.Applications for both licenses can be submitted online via the Online Single Submission portal. We believe we currently possess the necessary license to operate ourShopee business in Indonesia.55Table of ContentsGovernance of Electronic Information and/or DocumentsGeneral obligation of the government to prevent the dissemination of prohibited content is explicitly provided under Law No. 11 of 2008 on ElectronicInformation and Transaction as amended by Law No. 19 of 2016, or the Electronic Information and Transaction Law. Replacing the MOCIT Regulation No. 19 of 2014on Controlling Internet Websites Containing Negative Content, on November 24, 2020, the Indonesian government enacted MOCIT Regulation No. 5 of 2020 onPrivate Electronic Systems, or Private Electronic Systems Regulation, which revoked the previous MOCIT regulation on negative content. Under the new regulation,all digital platforms that fall within the private electronic system provider category, including platforms that provide offers and/or trade of goods and/or services,financial transaction services, and paid content to users’ devices, are required to ensure that its platform does not contain and facilitate the dissemination ofprohibited content. Prohibited content includes those that violate the prevailing law, disturb members of the public and public order, and provide access to orinformation to access prohibited content. If prohibited content is found on a digital platform, the platform operator must take down the prohibited content identified ina written notice from MOCIT no later than 24 hours upon receiving such notice. If the content is related to terrorism, child pornography, or any other content that maydisturb public order, the take down request will be considered as urgent and must be concluded within 4 hours upon receiving notice from MOCIT.Failure to take down prohibited content within the specified time period would, amongst others, cause MOCIT to block the public’s access to the platform.Upon removal of the prohibited content, the digital platform operator or the relevant ministry or institution may submit a written request to MOCIT to lift the block onthe platform.Limitations and Liabilities of Platform Operators and E-commerce MerchantsThe E-commerce Regulation provides for certain limitations of liability for e-commerce platform providers. E-commerce platform providers and intermediaryservice providers are discharged from liability for any illegal third-party content found on their platform if the relevant provider has acted expeditiously to remove ordisable access to such content after being aware of its existence. However, the E-commerce Regulation does not provide any clear criteria of an expeditious response.As for an intermediary service provider, it will also be discharged from any liability for illegal content if such provider is acting as mere conduit, caching, hosting andsearch engine providers. More detailed guidelines are provided in the Private Electronic Systems Regulation, which specifically addresses the steps to be taken byuser-generated-content platforms, or UGC platforms, to be discharged from liabilities arising from prohibited content uploaded by its users. First, the UGC platformoperators must maintain a governance policy governing the rights and obligations of the users and the operator as well as the division of liability arising from theuser’s content. Subsequently, the UGC platform must include a reporting feature which can be accessed by members of the public to file a claim or report on theexistence of prohibited content on its platform. Further, UGC platform operators must provide the information relating to the uploader of the prohibited content to therelevant law enforcement agencies and comply with the mandatory take down timeline.If UGC platforms like us fail to employ the abovementioned measures or to act in a timely or effective manner in response to user reports relating to listings orsales of prohibited content on the Shopee e-commerce marketplace, it may be subject to sanctions in the form of, amongst others, a temporary or permanent block.Regulations on Personal Data Protection and Information SecurityIn December 2016, MOCIT enacted MOCIT Regulation No. 20 of 2016 on Personal Data Protection, or the Personal Data Protection Regulation. In October2019, the Indonesian government enacted Government Regulation No. 71 of 2019 on the Provision of Electronic System and Transactions, or the Electronic SystemRegulation. Both regulations set out the rules governing the protection of personal data that are stored in electronic form. The regulations require any action taken inrelation to personal data, including acquisition, processing, storage, transfer, disclosure and access, and erasure, to secure prior consent of the owner of suchpersonal data. Further, under the Personal Data Protection Regulation, the electronic system providers are imposed with a comprehensive set of obligations, including:(i) certification of their electronic systems, (ii) adoption of internal data protection policies, (iii) provision of the option to the owner of personal data to choosewhether or not such personal data may be used and/or revealed to third parties, (iv) using legal software, (v) designation of dedicated contact person for dataprotection matters, and (vi) pre and post notification to MOCIT for overseas transfer of personal data.56Table of ContentsThe Electronic System Regulation clarifies the data localization requirement by specifying that such requirement applies only to "public electronic systemsproviders" (i.e. central and regional executive, legislative, judicative bodies and any other bodies established pursuant to a statutory mandate, and entities appointedby the public bodies to operate electronic systems on their behalf). Meanwhile, a private provider can choose whether to process and/or host its electronic systemsand data onshore or offshore. Regardless of the location, such provider must ensure that its electronic systems and data are accessible to the authority. However, thisflexibility does not apply to a private operator in the banking and financial services sectors.The Electronic System Regulation also elaborates the right of a data subject to request the removal of any data pertaining to them that are no longer relevant,which is popularly known as "the right to be forgotten." There are two types of the right to be forgotten, which is the right to erasure and the right to delisting. Thelatter can only be requested based on a court's order.Electronic system providers are also required to notify the personal data owner in the case of any breach involving his/her personal data no later than 14days subsequent to the occurrence of the breach. If we fail to comply with the Electronic System Regulation or Personal Data Protection Regulation, we may besubject to sanctions in the form of warnings or written reprimands, temporary suspensions, or may be blacklisted.Regulations on Consumer ProtectionConsumer protection in Indonesia is regulated under Law No. 8 of 1999 on Consumer Protection, or the Consumer Protection Law, which became effective onApril 20, 2000. It is the first comprehensive law devoted to protecting the rights of and promoting the recourses available to, users of both goods and services. Thelaw details activities and circumstances that are prohibited such as disclosing incorrect and unclear information regarding the services rendered or promoting falseadvertising. Violations of the Consumer Protection Law may result in an administrative and/or criminal sanction such as monetary compensation or an imprisonmentsanction.In addition to the above, the E-commerce Regulation also requires an e-commerce business operator to provide certain customer service mechanism for itsconsumers, including contact number and email address, and resolve any report of damages by its consumers to the Ministry of Trade. Merchants and e-commerceplatform providers are also required to give their consumers at least two days to return the purchased goods and/or services or to carry out a cancellation, startingfrom the time when the goods and/or service is received by the consumer. However, the return of goods and/or services or cancellation may only be conducted if suchreturn or cancellation fulfils certain criteria, among others, if the goods and/or service is damaged or has expired. E-commerce platform providers are also required toprovide a refund mechanism for cancellation of a purchase. Failure to comply with the aforementioned requirements may result in administrative sanctions rangingfrom written reprimands to revocation of the business license.Regulations on Electronic Money and Electronic WalletUnder the prevailing Indonesian laws and regulations, electronic money and electronic wallet are classified into different categories. Electronic money or e-money is defined as a payment instrument (i) issued on the basis of the value of money deposited in advance to the e-money issuer, (ii) where the value of the moneyis stored electronically in a server or a chip, and (iii) where the value of the e-money managed by the issuer will not be considered as savings under the bankingregulations. Pursuant to the issuance of Bank Indonesia Regulation No. 20 of 2018 on Electronic Money or the E-money Regulation, Bank Indonesia recognizes twotypes of e-money systems: namely (i) closed loop systems, where the e-money can only be used as a payment instrument for goods and/or services provided by thee-money issuer, and (ii) open loop systems, where the e-money can be used as a payment instrument for goods and/or services provided by third party providers.An e-money issuer is required to obtain a license from Bank Indonesia, except if such e-money issuer provides a closed loop e-money system and thefloating funds issued by such issuer is less than IDR1 billion (US$70,897). Upon obtaining the license, an e-money issuer may offer features such as user registration,deposit top-up, transaction and bills payment and cash withdrawal. Unregistered users can deposit up to IDR2 million (US$142) in e-money value, whilst registeredusers may deposit and use up to IDR10 million (US$709). An e-money issuer can add a fund transfer feature by obtaining a separate license from Bank Indonesia. Wecurrently have the e-money license in Indonesia.With regard to electronic wallet or e-wallet, Bank Indonesia is of the view that e-wallet have different functionalities from e-money, in that, it is not only apayment instrument, but also a feature to store a user’s payment instrument information (e.g. debit card, credit card, and/or e-money). An e-wallet user can deposit upto IDR10 million (US$709) to its e-wallet, which can be used for any payment transactions.57Table of ContentsWith respect to reporting obligations, both e-money issuers and e-wallet providers are obliged to submit periodical and incidental reports to Bank Indonesia.The periodical reports consist of daily, monthly and annual reports, as well as a tri-annual report on the result of independent audit result on information system.Incidental reports include report of any problems in the payment transaction processing, change of capital and shareholding, and force majeure events. Any failure tocomply with the regulations governing e-money and e-wallet businesses may result in reprimands and monetary fines; and, depending on the severity of the non-compliance, may also result in temporary suspension of activities and/or revocation of the relevant license.Regulations on Payment SystemsIn December 2020, Bank Indonesia issued Regulation No. 22/23/PBI/2020 of 2020 on Payment Systems, or Payment Systems Regulation. The PaymentSystems Regulation is intended to be an “umbrella” regulation that provides a regulatory framework for the Indonesian payment systems industry. The PaymentSystems Regulation will be effective on July 1, 2021.The Payment Systems Regulation categorizes non-bank payment institutions into two categories, namely payment service providers or PSP and paymentinfrastructure providers or PIP. PSPs include most institutions providing front-end services to end-consumers such as e-money issuers, acquirers, payment gatewayservices providers, fund transfer/remittance services providers. PIPs are generally institutions which facilitate clearing and settlements or back-end services, betweenPSPs or between other PIPs.PSPs and PIPs will be classified based on transaction size, interconnectivity, complexity, and whether it is replaceable, according to the regulation. BankIndonesia will assess the existing licensed players to: (i) reclassify the licensee, and (ii) ensure the capability of the licensee to fulfil the new requirements, particularlyon capital and financial, risk management, and IT system capability aspects. Based on the assessment, Bank Indonesia will convert the license into a new license. Thelicensee will need to make a statement of commitment to comply and afterwards, the licensee will be given a transition period of two years to fulfil with therequirements.In addition, by issuing the Payment Systems Regulation, Bank Indonesia becomes the first regulator in Indonesia that adopts a new approach to regulatingforeign direct investment by decoupling economic and voting rights, which could affect foreign investors in payment sectors. Bank Indonesia permits foreigninvestors in a PSP to hold up to 85% economic interests, from previously 49%, but at the same time, Bank Indonesia disregards economic interests in determiningcontrol. A shareholder in a PSP will be deemed to have control if it holds at least 51% voting rights in the provider, has the right to appoint members of management inthe provider, and holds a veto right in the provider's general meeting of the shareholders. The regulation also adds that only domestic parties can hold these rights.This means that while a foreign investor can hold the majority economic interests in a service provider, a domestic shareholder must remain the controller of suchprovider. On the other hand, Bank Indonesia does not differentiate between economic interests and voting right in a PIP where a foreign investor can only hold up to15% economic interests. These restrictions are also applicable to existing providers, if there is a change in the foreign shareholding in such provider after July 1, 2021.Regulations on Online LendingOnline lending in Indonesia is divided into two categories, namely off-balance sheet and on-balance sheet. Whilst online on-balance sheet lendingbusinesses are still subject to the financing company regulations that are applicable to its offline counterparts, online off-balance sheet lending or peer-to-peerlending is regulated specifically under the Financial Services Authority (Otoritas Jasa Keuangan/OJK) Regulation No. 77/POJK.01/2016 of 2016 on Lending andBorrowing Services based on Information Technology or Peer-to-peer Lending Regulation. We have the requisite license to conduct the lending business we currentlydo in Indonesia.Regulations on BankingBanking in Indonesia is regulated under Law No. 7 of 1992 regarding Banking issued on March 25, 1992, as amended by Law No. 10 of 1998, or the BankingLaw. The Banking Law governs banks’ types and businesses, licensing, legal form and ownership, management structure, and bank secrecy. The implementingregulations of the Banking Law, the Financial Services Authority Regulation No. 6/POJK.03/2016 TAHUN 2016 on Business Activities and Branch Offices Based onCore Capital of Banks, as amended by the Financial Services Authority No. 17/POJK.03/2018 TAHUN 2018, divide banks into four categories called “Buku” namely: (i)Buku 1 banks with core capital less than IDR1 billion (US$70,897), (ii) Buku 2 banks with core capital between IDR1 billion (US$70,897) to less than IDR5 billion(US$354,484), (iii) Buku 3 banks with core capital between IDR5 billion (US$354,484) to less than IDR30 billion (US$2.1 million), and (iv) Buku 4 banks with core capitalat least IDR30 billion (US$2.1 million). However, in 2020, the Financial Services Authority issued Regulation No. 12/POJK.03/2020 TAHUN 2020 on Consolidation ofCommercial Banks which requires all banks to fulfill a minimum core capital of at least IDR3 billion (US$212,691) by December 31, 2022.58Table of ContentsOur bank in Indonesia is currently categorized as a Buku 2 bank which allows us to engage in Rupiah and foreign currency banking activities, includingagency activities and cooperation, payment systems and electronic banking, capital participation in Indonesian financial institutions and temporary capitalparticipation for credit rescue.Regulations on Intellectual Property RightsTrademark and Geographical Indication LawBefore the end of 2016, the Indonesian House of Representatives enacted the Law No. 20 of 2016 on Trademark and Geographical Indication, or theTrademark and Geographical Indication Law. The new Trademark and Geographical Indication Law has expended the scope of trademark protection and adopted theMadrid Protocol provisions for trademark registration in our Indonesian entities.As of the end of 2020, the enactment of Law No. 11 of 2020 concerning Job Creation shortens the trademark registration process from eight months to sixmonths for applications that are not opposed by other parties during the publication period and inserts an additional qualification/consideration for the trademarkexaminer in determining whether a trademark application can be registered. In addition, the Trademark and Geographical Indication Law recognizes two types ofinternational trademark registration application under the framework of Madrid Protocol: an application originating from Indonesia to an International Bureau which isfiled through the Directorate General of Intellectual Properties under the Minister of Law and Human Rights, or an application addressed to Indonesia as the receivingoffice from an International Bureau. To be able to file an application in Indonesia for the international registration of a trademark through the Madrid Protocol, theapplicant either must have applied for registration of the trademark in Indonesia or already owns the trademark in Indonesia.Regulations Relating to CopyrightsCopyrights in Indonesia are regulated under Law No. 28 of 2014 on Copyrights, or the Indonesia Copyright Law. Indonesia adopts the declarative system ofcopyright protection whereby a copyright is an exclusive right of a creator of content which arises automatically after a creation appears in a concrete form. TheIndonesia Copyright Law protects creations in the field of science, arts and literature, which includes, among others, computer programs, video games, photography,songs or music with or without lyrics, and all forms of art.Regulations on Anti-money Laundering and Prevention of Terrorism FinancingPrevention and Eradication of Money LaunderingLaw No. 8 of 2010 on Prevention and Eradication of Money Laundering regulates the types of transactions which are required to be reported to theIndonesian Financial Transaction Reports and Analysis Center, or PPATK, and the entities responsible to report such transactions. Under this law, any party whoconceals or disguises the origin, source, location, allocation, assignment, or actual ownership or assets known or reasonably suspected to be proceeds of crimes maysubject to monetary sanction of up to IDR5 billion (US$354,484) imprisonment of up to 20 years. Financial service providers must comply with know-your-customerprinciples and report suspicious financial transactions that it believes is related to money laundering to the PPATK. The reporting party is required to report to PPATKany suspicious financial transactions, and any transaction entered into with its customers having a minimum amount of IDR500 million (US$35,448), or an equivalentvalue in other currencies, and/or any financial transaction involving the transfer of funds from and to other countries, no later than 14 business days after thetransaction is conducted.59Table of ContentsFailure to submit the report may subject the reporting party to administrative sanction(s) which will be imposed by the supervisory and regulatory body inthe form of a warning letter, public announcement on the action or sanction and/or an administrative penalty.Prevention and Eradication of Terrorism FinancingLaw No. 9 of 2013 on the Prevention and Eradication of Terrorism Financing was enacted in order to prevent the funding of terrorists. Under this regulation,an act of terrorism financing is defined as direct and/or indirect acts in order to provide, collect, grant, or loan funds to persons that knowingly would use the funds toconduct terrorist acts. Companies that fund terrorism in Indonesia may face large monetary fines, have their assets seized and their permits revoked. Moreover, suchcompanies may also be dismantled or expropriated by the government. Financial service providers must comply with know-your-customer principles and reportsuspicious financial transactions that it believes is related to terrorism to the PPATK. Failure to do so will result in fines of up to IDR1 billion (US$70,897). Financialservice providers that provide fund transfer services must also request the sender of funds to present identification and information explaining the purpose of thefund transfer and must keep a record of all transactions for at least five years. Funds of the alleged financers of terrorism may be frozen upon the request of thePPATK, investigators, public prosecutors, a judge, and other legally designated parties.Regulations on LaborUnder Law No. 13 of 2003 on Manpower as amended by Law No. 11 of 2020 on Job Creation, or the Indonesia Manpower Law, we are not allowed to pay ouremployee wages below the minimum wage stipulated annually by the relevant provincial government. In certain conditions, a governor may set the minimum wage forregencies or municipalities in their respective provinces. The minimum wage is set in accordance with the economy and employment situation of the relevant province.If we fail to abide by requisite minimum wage regulations in the Indonesia Manpower Law, our directors may be liable to a term of imprisonment of no less than oneyear and up to four years. Moreover, we may also be subject to a fine of no less than IDR100 million (US$7,090) and up to IDR400 million (US$28,359).Indonesia has adopted social protection and social welfare programs for employees who are working in Indonesia under Law No. 24 of 2011 on the SocialSecurity Agency as amended by Law No. 11 of 2020 on Job Creation, or the Indonesia Social Security Agency Law. The Indonesia Social Security Agency Lawestablishes two social welfare programs, namely, the healthcare social security insurance and employment social security. Employment social security covers workerscompensation, pensions and life insurance. Under the Indonesia Social Security Agency Law, an employer is required to register itself and its employees asemployment social security participants. If an employer fails to comply with this obligation, it will be subject to a written warning, fines and/or exclusion from certainpublic services. The Indonesia Social Security Agency Law further stipulates that an employer that violates its obligation to provide the requisite financialcontributions to healthcare social security insurance and employment social security will be subject to up to eight years of imprisonment and fines of IDR1 billion(US$70,897). In addition, every person, including foreign nationals, who is employed for at least six months in Indonesia, must participate in the social securityprograms in Indonesia.TaiwanRegulations on Foreign InvestmentAlthough there have been significant economic and cultural interactions and relationships established between Taiwan and the PRC, there have been andremain tensions between the governments of Taiwan and the PRC regarding the international political status of Taiwan. Due in large part to these tensions, Taiwan hasimposed restrictions on investments by PRC investors.60Table of ContentsInvestment in Taiwan by PRC investors is governed by the Measures Governing Investment Permits to the People of the Mainland Area, or the Measures,which was last amended on December 30, 2020, and promulgated by the Ministry of Economic Affairs of Taiwan, or the MOEA. PRC investors refer to PRCindividuals, juristic persons, organizations and other institutions and PRC invested companies from other jurisdictions, or collectively, PRC investors. “PRC investedcompanies from other jurisdictions” refer to those entities incorporated outside of the PRC and invested by PRC individuals, juristic persons, organizations and otherinstitutions that (i) directly or indirectly hold more than 30% of the shares or capital of such entities (each intermediate holding company shall be separately assessedbased on this 30% test to determine whether it is deemed a PRC invested company from other jurisdictions), or (ii) have the ability to control such entities. Underapplicable regulatory guidance, “control” is defined to include: (i) having the ability to hold more than 50% of the voting shares under agreement with other investors;(ii) having the ability to control the financing, operation and personnel appointment and removal of the company according to laws or agreements; (iii) having theability to appoint or remove more than half of the members of the board of directors or more than half of the key members of the other organization that is able to directa company’s operation, and such company is controlled by the board of directors or such other organization mentioned above; (iv) having the ability to direct morethan 50% of the voting power in the board of directors or more than 50% of the voting power in the other organizations that is able to direct a company’s operation,and such company is controlled by the board of directors or such other organization mentioned above; or (v) other indicia of control as set forth in the InternationalFinancial Reporting Standards or Enterprise Accounting Standards promulgated by the Financial Accounting Standards Committee of the Accounting Research andDevelopment Foundation of the Republic of China. PRC investors are required to apply for an approval before engaging in the following investment activities: (i)holding the shares issued by or making capital contribution in a company, sole proprietorship, partnership or limited partnership in Taiwan, exclusive of a single oraccumulated investment that is less than 10% of the shares in a company that is listed on a stock exchange or traded on an over-the-counter market in Taiwan; (ii)setting up a branch, sole proprietorship, partnership or limited partnership in Taiwan; (iii) providing loans to invested companies for more than one year; (iv) havingthe ability to control a sole proprietorship, partnership, limited partnership or company in Taiwan that is not listed and traded on a Taiwanese stock exchangeaccording to agreements or other methods ; or (v) a PRC invested companies from other jurisdictions acquires business or assets of a Taiwanese company that is notlist and traded on a Taiwanese stock exchange. In addition, if a PRC investor is a juristic person, organization, or other institution invested by (a) a “political party”,military, administrative or political agency of PRC, or (b) PRC invested companies from other jurisdictions invested by the agencies listed in item (a) above, the Taiwanauthorities may restrict or prohibit such PRC investor from investing in businesses in Taiwan. Certain statutory business categories, such as computer recreationalactivities, software publication, third party payment and general advertising services, are not listed as permitted in the Positive Listings. PRC investors are not allowedto invest in a Taiwan company that operates businesses in such statutory business categories.Before investing in Taiwan in accordance with the Measures, PRC investors investing in a Taiwan company that operates businesses in the statutorybusiness categories listed as permitted in the Positive Listings are required to apply for prior approval from the MOEA.In case of being deemed non-compliant with the above-mentioned laws and regulations, the Taiwan authorities may take a range of actions, including:●imposing fines between NT$120,000 (US$4,274) and NT$25,000,000 (US$890,313) and further fines if the non-compliance is not rectified as ordered;●ordering the violator to reduce any direct or indirect ownership or control by PRC investors;●requesting the violator to divest some or all of its investment or control in its invested entities in Taiwan;●suspending the rights of shareholders; and●discontinuing the operations, and revoking the business licenses of its invested entities in Taiwan.Foreign InvestorsForeign investments in Taiwan are governed by the Statute for Investment by Foreign Nationals, last amended on November 19, 1997. Foreign investors mayinvest by holding shares issued by a Taiwanese company, contributing to its registered capital, establishing a branch office, a proprietary business or a partnership inTaiwan, or providing loans to the invested business for a period exceeding one year, provided that the business items of the invested Taiwanese company are not in anegative list promulgated by the MOEA from time to time.61Table of ContentsFinancial Support Provided by Offshore EntitiesAccording to the Statute for Investment by Foreign Nationals, last amended on November 19, 1997, offshore entities can provide loans for a period less thanone year to any Taiwanese companies that such offshore entities do not hold any equity interest in without any approval from government authorities, subject tocertain foreign exchange approval requirements in connection with the remittance of foreign currency in excess of certain amount by Taiwanese entities. There is nomaximum limitation on the amount of loans a Taiwanese company may receive from an offshore entity. Moreover, based on current laws and regulations, there isgenerally no limitation on guarantees made by an offshore entity to a Taiwanese company.Regulations on Foreign ExchangeForeign exchange matters are generally governed by Taiwan’s Foreign Exchange Regulation Act, last amended on April 29, 2009, and regulated by theMinistry of Finance of Taiwan, and the Central Bank of the Republic of China (Taiwan). Authorized by the Foreign Exchange Regulation Act, the Central Bank of theRepublic of China (Taiwan) has promulgated the Regulations Governing the Declaration of Foreign Exchange Receipts and Disbursements or Transactions, lastamended on November 13, 2018, in order to deal with the declaration of foreign exchange receipts, disbursements or transactions involving NT$500,000 (US$17,806) ormore or its equivalent in foreign currency.Under existing laws and regulations, foreign exchange approvals must be obtained from the Central Bank of the Republic of China (Taiwan) on a payment-by-payment basis. A single remittance by a company with an amount over US$1 million shall be reported and documents supporting the accuracy of such report shall beprovided to the bank handling such remittance before the remittance is conducted. In addition, remittances by a company whose annual aggregate amount exceedsUS$50 million may not be processed without the approval of the Central Bank of the Republic of China (Taiwan). Although such approvals have been routinelygranted in the past, there can be no assurance that in the future any such approvals will be obtained in a timely manner, or at all.Regulations on Dividend DistributionsDividend distributions by companies incorporated in Taiwan are governed by the Taiwan Company Act. Under the Taiwan Company Act, with respect to acorporate entity, dividends shall only be distributed after the 10% of annual net income (less prior years’ losses, if any, and applicable income taxes) is set aside as alegal reserve until the accumulated legal reserve equals the paid-in capital of such company. In addition, a foreign company’s Taiwan branch, such as our digitalentertainment business entity in Taiwan, is not entitled to distribute dividends or make other distributions and can only remit the profits to its holding company inaccordance with foreign exchange control regulations after satisfying the relevant income tax obligation in Taiwan.Regulations on Information Technology and Intellectual Property RightsTaiwan does not have a specific statute with respect to regulations governing information technology. The related regulations are mainly dispersed withinthe Electronic Signatures Act promulgated on November 14, 2001. The main purpose of the Electronic Signatures Act is to encourage the use of electronictransactions, ensure the security of electronic transactions, and facilitate the development of electronic commerce. According to the Electronic Signatures Act,documents may be maintained in electronic form, and an electronic signature may be used with the consent of the other party. In addition, a non-government agencyshall not collect or process specific personal information unless it has a legitimate specific purpose and complies with all of the conditions provided in the relevantlaws.Intellectual property rights are protected primarily through the Copyright Act (last amended on May 1, 2019), the Patent Act (last amended on May 1, 2019),the Trademark Act (last amended on November 30, 2016) and the Trade Secrets Act (promulgated on January 15, 2020) in Taiwan.Regulations on Imported Games and Game OperationsOperations of online games are regulated by the Regulations on the Rating of Game Software, last amended on May 23, 2019. Game operating companies andagents of game software need to clearly label the rating and warning language on the packaging or webpages of the game according to the rating system under theregulations and register the rating level and plot of such game software in the database of the competent authority to allow for rating level searches prior to theearliest date on which the game is made available for public purchase. In the event the rating level of a game is not labeled properly according to the relevantregulations, the game operating company or agent may be subject to fines, and may be subject to repeated penalties if such non-compliance is not rectified within thestipulated periods.62Table of ContentsIn addition, according to the Recording of Matters in the Standard Contracts of Online Games promulgated by the Executive Yuan on December 13, 2007 andlast amended on October 8, 2018, game operating companies need to label the following information on their game websites and the packaging of their games: (i) therating level and the age groups that are prohibited or suitable for the game, (ii) the minimum system requirements for running the game, (iii) payment information forsafety systems provided within the online games (if any), and (iv) information and certain warning language regarding in-game activities, rewards and prizes.Regulations on E-commerceAs there are no specific regulations in Taiwan governing e-commerce businesses, operation of e-commerce in Taiwan is regulated by a number of legislations,such as Personal Data Protection Act, the Act Governing Electronic Payment Institutions, and Consumer Protection Act. See “—Regulations on E-payment Services”and “—Regulations on Data Protection and Information Security” below. The regulation on e-commerce by Consumer Protection Act is generally implementedthrough the Recording of Matters in the Standard Contracts of Retail Business and Other Online Transactions. According to the Recording of Matters in the StandardContracts of Retail Business and Other Online Transactions, last amended on July 15, 2016, online retail business is required to present certain information on theirwebsite, such as product information, delivery method and location, and mechanism for resolution of consumer disputes.Regulations on E-payment ServicesUnder the Act Governing Electronic Payment Institutions promulgated on February 4, 2015, effective as of May 3, 2015 and last amended on January 27, 2021(such amendments to become effective as of July 1, 2021), an “electronic payment institution” means a company approved by the competent authority to operate thefollowing businesses and certain ancillary or derivative businesses as prescribed under the Act Governing Electronic Payment Institutions: (i) collecting and makingpayments for real transactions as an agent, (ii) accepting deposits of funds as stored value funds, (iii) conduct small amount of foreign exchange, and (iv) conduct thepurchase and sale of the foreign currencies and the currencies of PRC, Hong Kong or Macau. However, a company which (i) only engages in the business ofcollecting and making payments for real transactions as an agent; (ii) the total balance of funds it collects/pays and keeps does not exceed NT$1 billion (US$35.6million) in the average daily amount of a year; and (iii) does not accept deposits of funds as stored value funds, or transfer funds between e-payment accounts is notconsidered an electronic payment institution. If the total balance of funds such company collects/pays exceed NT$1 billion (US$35.6 million) in the average dailyamount of a year, or such company conducts either accepting deposits of funds as stored value funds, or transferring funds between e-payment accounts, then suchcompany shall apply for certain license to qualify as an electronic payment institution.Regulations on Data Protection and Information SecurityThe main regulation governing the protection of personal data in Taiwan is the Personal Data Protection Act, last amended on December 30, 2015. ThePersonal Data Protection Act governs the collection, processing and use of personal information in order to prevent abuse of personal data by other parties.Companies that seek to collect, process and use personal information need to disclose the name of the party collecting the personal information and the purpose ofcollecting the personal information subject to the user’s consent, as appropriate. Data subjects should also be informed of their rights under the Personal DataProtection Act and how they can exercise such rights. Our digital entertainment and e-commerce businesses are required to comply with the Personal Data ProtectionAct while collecting, processing and using the personal information of our users. Failure to comply with the Personal Data Protection Act will give rise to fines andcriminal liability.Regulations on Anti-money Laundering and the Prevention of Terrorism FinancingAccording to the Money Laundering Control Act of Taiwan, which was last amended on November 7, 2018, the scope of the definition of money launderingincludes the following behaviors: (i) knowingly disguises or conceals property or property interests obtained from a serious crime or transfers or changes the specificgain from criminal actions to assist others to escape from criminal indictment; (ii) covers or hides the nature, source, flowing, location, ownership, disposition andother interest of gains of a particular crime; and (iii) receives, possesses or uses the gain of a particular crime. We will continue to closely monitor regulatorydevelopments in order to continue to comply with the anti-money laundering and prevention of terrorism financing regulations.63Table of ContentsRegulations on LaborAccording to the Labor Standards Act of Taiwan, last amended on June 10, 2020, employers are not allowed to terminate employment contracts withoutcause. Further, the mere transfer of ownership of a company is not sufficient grounds for laying-off employees. Only when the employer is to be dissolved due totransactions under the Business Mergers and Acquisitions Act can such employer terminate the employment agreements with the employees that are not offeredemployment by the surviving or assigned company. Under the Labor Standards Act and the Labor Pension Act of Taiwan, employers are required to contribute noless than 6% of an employee’s monthly salary into a specific account as part of the employee’s pension. Under the Labor Insurance Act of Taiwan, employers shouldwithhold and pay for certain statutory percentages of the labor insurance premiums for employees aged between 15 and 65. In addition, under the National HealthInsurance Act of Taiwan, employers are required to pay for a certain statutory percentage of the employees’ health insurance premium.VietnamRegulations on Foreign InvestmentForeign investment into Vietnam is regulated by both domestic legislation and international agreements, with the primary regulations being the Law onInvestment and Vietnam’s WTO commitments. Foreign investment is generally divided into three categories: unrestricted, restricted, and prohibited. With respect tothe “restricted” category, restrictions can take the form of a specific foreign ownership ceiling in a foreign-invested company, a general requirement to enter into a jointventure with a Vietnamese party with no mandated maximum foreign ownership ceiling, or the requirement to obtain certain government approvals for foreignownership with respect to the industries that the Vietnam government has not committed to opening to foreign investment. For example, foreign ownership incompanies engaging in online game business may not exceed 49%, and companies with foreign ownership engaging in e-payment or e-commerce business have toobtain certain government approvals. We have obtained approvals from competent authorities of Vietnam for direct ownership of equity interests in our online game,e-commerce and e-payment businesses as a foreign investor, including approval for 100% direct ownership in our e-commerce business.On June 17, 2020, the National Assembly of Vietnam adopted the Law on Investment 2020, or Law on Investment 2020, which came into effect on January 1,2021. Under the Law on Investment 2020, the investment registration authority of Vietnam could terminate an investment project in whole or in part if the investorconducted investment activities on the basis of a false civil transaction, which is a transaction falsely entered into by transacting parties for the purpose of concealingother transactions or evading responsibilities to a third person.Financial Support Provided by Offshore EntitiesFinancial support in the form of loans, direct cash injections and guarantees provided by an offshore entity to a Vietnam entity is permitted under Vietnameselaws, including Vietnam’s foreign exchange control regime. Loans provided by offshore lenders to Vietnam entities with a term of more than 12 months must beregistered with the State Bank of Vietnam and must satisfy certain conditions with respect to the term, type and purpose of the loan. There is no other restriction ordollar amount limitation imposed on any of the foregoing financial support mechanisms.Regulations on Foreign ExchangeVietnam does not possess a fully liberalized foreign exchange control regime, and the use, exchange and remittance of foreign currencies are regulated by theOrdinance on Foreign Exchange Control and its guiding instruments, along with miscellaneous regulations on inward investment.64Table of ContentsThe use of, and exchange of foreign currencies for, Vietnamese dong, is broadly dependent on whether such foreign currencies are used for capitalinvestment purposes or general transactional purposes. Capital investment comprises both indirect investment and direct investment, with direct investment generallydefined as any foreign investment where (i) foreign investor(s) establish a corporate entity and is required to obtain an investment registration certificate, (ii) foreigninvestor(s) hold 51% or more of the charter capital following a merger, acquisition or restructuring, (iii) foreign investor(s) establish a project company to implementpublic-private partnership project(s), or (iv) foreign investor(s) establish a corporate entity pursuant to specialized laws without being required to obtain aninvestment registration certificate. Foreign currencies and Vietnamese dong are permitted to be used for direct investments and only Vietnamese dong may be used forindirect investments. All capital investments into Vietnam, whether direct or indirect, must be made through specialized investment capital bank accounts, and anydividend distributions and returns of capital from such investments must be made through the same accounts. There are no foreign exchange control or remittancerestrictions imposed on amounts held in such investment capital bank accounts, except for the requirement for supporting documents evidencing valid remittances.Vietnamese dong held in current accounts can generally be freely exchanged for foreign currency and subsequently remitted offshore, provided that theorigin of such amounts and the reason for the exchange and remittance are legitimate and legal. Contracts for the supply of goods or services entered into between aVietnamese individual or company and a foreign company are one of the valid bases for such foreign currency exchange transactions.Regulations on Dividend DistributionsIn Vietnam, a company is allowed to pay dividends at the end of a financial year if its business operation in the financial year is profitable, and after it hassettled all of its outstanding tax obligations, provided that the payment of the dividends will not result in the company being unable to discharge its debts and otherliabilities.Regulations on Imported Games and Game OperationsAccording to Circular No.34/2013/TT-BCT, games are permitted to be imported into Vietnam. With regard to the publication of games, including electronicgames, Vietnam’s WTO commitments allow foreign investors to provide electronic games only through a business cooperation contract or a joint venture companywith a Vietnamese partner which is licensed to provide electronic games. Foreign investment into the joint venture company generally shall not exceed 49%. See “—Regulations on Foreign Investment” above.The operation of electronic games is mainly governed by Decree No. 72/2013/ND-CP, which regulates the management, provision and use of internet servicesand online information, and Circular No. 24/2014/TT-BTTTT of which several provisions are amended and supplemented by Decree No. 27/2018/ND-CP and DecreeNo. 150/2018/ND-CP, which provide further guidance to Decree No.72/2013/ND-CP. These regulations divide electronic games into the following categories: G1 games(simultaneous interactions among various players via a game server), G2 games (simultaneous interactions only between players and a game server), G3 games(simultaneous interactions among various players but no interactions between players and a game server), and G4 games (those downloaded from a network with nointeraction among players or between players and the game server). Companies may operate G1 games after obtaining a License to Provide Game Services and, foreach game the company offers, it also needs to obtain a Decision to Approve Game Content issued by the Ministry of Information and Communications of Vietnam.Companies may operate G2, G3 and G4 games after obtaining a Certificate of Registration of Game Service Provision and, for each game the company offers, it alsoneeds to obtain an Acknowledgement of Announcement of Service Provision issued by the Agency of Broadcasting and Electronic Information.Regulations on E-commerceE-commerce businesses are mainly governed by the Law on E-Transactions, Decree No.52/2013/ND-CP, or Decree 52, Circular 47/2014/TT-BCT, or Circular 47,and Circular No.59/2015/TT-BCT, or Circular 59.According to Decree 52 and Circular 47, companies that own e-commerce direct sale websites must notify the Ministry of Industry and Trade of Vietnam oftheir establishment. Companies that own e-commerce service provision websites, including e-commerce marketplace, online auction websites, and online promotionwebsites, must register with the Ministry of Industry and Trade for the establishment of such e-commerce platforms.65Table of ContentsAccording to Circular 59, e-commerce mobile applications include applications used for direct sale of goods and applications for provision of e-commerceservices. Accordingly, a company with such applications must register to establish an e-commerce service provision website with the Ministry of Industry and Tradeif it owns a mobile application with both goods sales and services provision functions, and notify the Ministry of Industry and Trade of the establishment of themobile application for either the sale of goods or the provision of services.Our e-commerce business in Vietnam has made the requisite applications and notifications and obtained the requisite approvals for the provision of e-commerce services.Regulations on E-payment ServicesAccording to Decree No.101/2012/ND-CP, intermediary payment services include the provision of electronic payment facilities (such as financial switchservices, electronic clearing services and electronic payment gateway services), payment support services (such as cash collection and cash payment services,support services for wire transfers and digital wallet services), as well as other intermediary payment services prescribed by the State Bank of Vietnam. Non-financialcompanies that wish to provide intermediary payment services are required to obtain a license for intermediary payment services. To obtain this license, companiesmust satisfy certain conditions, such as meeting minimum equity capital thresholds (50 billion Vietnamese dong, or approximately US$2.2 million) as well as receivingprior approval for its plan to operate the intermediary payment services.Our digital financial services business in Vietnam has obtained the license for intermediary payment services for electronic payment gateway services, cashcollection and cash payment services and digital wallet services.Regulations on Data Protection and Information SecurityVietnam does not have a comprehensive data protection law. Instead, data protection provisions are prescribed across various legislation, which include theVietnam Civil Code, the Law on Protection of Consumers’ Rights, the Law on Information Technology, the Law on E-commerce, etc. which are all issued by theNational Assembly of Vietnam. While there is no unified definition, personal data may generally be defined as information that is adequate to accurately identify a datasubject, covering at least one of the following types of information: full name, date of birth, ID number/passport number, profession, title, contact address, e-mailaddress, and telephone number. A subject’s right to privacy is protected by laws. Any collection, publication, processing, transfer to a third party or any other use ofa subject’s personal information may require the consent of such subject.On November 19, 2015, the Vietnam National Assembly issued the Law on Cyber Information Security, which sets forth regulations on cyber informationsecurity. Accordingly, individuals and companies must implement measures to assure the security of cyber information. For example, entities providing informationtechnology services must comply with regulations on the storage and use of personal information, apply blocking and handling measures upon receipt of a notice thatsending such information is illegal, and implement measures to allow recipients to refuse the receipt of information.Regulations on Intellectual Property RightsIntellectual property rights in Vietnam are governed by the Law on Intellectual Property, together with certain international agreements to which Vietnam is asignatory (such as Vietnam’s WTO commitments on Trade-Related Aspects of Intellectual Property, and the Madrid Agreement Concerning the InternationalRegistration of Marks).In order for certain intellectual property rights to be recognized and enforceable in Vietnam, intellectual property owners must register those rights.Copyrights will be registered with the Department of Copyright of Vietnam (COV) but the registration is not compulsory. As a member of Bern Convention, allcopyrights will be protected automatically. Industrial property, such as patents, trademarks (except for well-known trademarks) and industrial design, must beregistered with the National Office of Intellectual Property of Vietnam (NOIP) in order to be protected in Vietnam. A well-known trademark may be protected based onthe use without registration. From November 1, 2019, the agreement of trademark license is not required to register with NOIP in order to have the validity with thirdparty.66Table of ContentsRegulations on Anti-money Laundering and Prevention of Terrorism FinancingVietnam’s Law on the Prevention of Money Laundering contains the primary anti-money laundering and prevention of terrorism financing regulations inVietnam. It applies to all financial institutions and certain non-financial institutions engaged in specific business activities, which include offering games for prizes andpayment services, such as those operated by our Vietnam VIEs.The Department of Anti-Money Laundering established under the State Bank of Vietnam monitors and regulates Vietnam’s anti-money laundering regime.Entities subject to the anti-money laundering regime must report certain transactions to the Department of Anti-Money Laundering, including high-value transactionsof no less than 300 million Vietnamese dong (US$12,970), suspicious transactions, and transactions involving companies or individuals in the countries and territorieson the “black list” published by the Ministry of Public Security. Moreover, apart from the know-your-customer procedures required by Vietnamese law, entities subjectto the anti-money laundering regime must perform an enhanced due diligence investigation on high-risk parties, which includes foreign individuals on the list of“politically influenced persons” provided by the State Bank of Vietnam or individuals or entities conducting transactions using new technologies that enable suchpersons to conduct transactions without meeting in person with a member or staff of the reporting subjects.Regulations on LaborVietnam’s Labor Code, along with a number of guiding instruments, regulates the relationship between employers and employees in Vietnam, including bothVietnamese nationals and expatriates. It specifies that an employment contract must generally be made in writing. Pursuant to Labor Code 2012, there are broadly threetypes of labor contracts: indefinite term contracts, fixed term contracts, and temporary or seasonal contracts. However, in accordance with the new Labor Code 2019,effective January 1, 2021, there will be only two types of labor contracts, namely indefinite term and definite term contracts. An employer is only permitted to offer twoconsecutive fixed term contracts, subsequent to which the employment contract must be an indefinite term contract.Vietnam has a particularly employee friendly labor law regime. Employees are entitled to statutory benefits payable by the employer, including health, socialand unemployment insurance. Since 2009, unemployment insurance replaced the employer’s compensation of severance to an employee upon the termination ofemployment. Moreover, non-compete, non-solicitation and any other labor contract clauses which may be deemed to interfere in a person’s right to seek employmentare difficult, if not impossible, to enforce.ThailandRegulations on Foreign InvestmentForeign investment in Thailand is regulated under the Thai Foreign Business Act, B.E. 2542 (1999), as amended, which states that a foreigner is restrictedfrom engaging in certain businesses in Thailand as described in the Thai Foreign Business Act, such as advertising business, sale of food and beverage, and otherservice businesses which include e-payment services, unless an approval is granted by the Cabinet of Thailand or a foreign business license or a foreign businesscertificate is granted by the Ministry of Commerce of Thailand, depending on the type of business specified under the Annexes to the Thai Foreign Business Act, orthere is an exemption under other specific laws.The term “foreigner” under the Thai Foreign Business Act covers the following definitions:(i)a natural person who is not a citizen of Thailand;(ii)a juristic person not established in Thailand;67Table of Contents(iii)a juristic person established in Thailand with half or more of the shares constituting its capital held by (i) or (ii) or half or more of the total capital ofsuch juristic person invested by (i) or (ii); and(iv)a juristic person established in Thailand with half or more of the shares constituting its capital held by (i), (ii) or (iii), or half or more of the totalcapital of such juristic person invested by (i), (ii) or (iii).Under the Thai Foreign Business Act, the definition of “foreigner” does not include references to relative voting arrangements, control of the management ofa company or the economic interests of Thai and foreign nationals. The Thai Foreign Business Act only considers the immediate level of shareholding. As a result, nocumulative or look-through calculation is applied to determine the foreign status of a company when it has several levels of foreign shareholding. See “—C.Organizational Structure—Thailand Shareholding Structure” for more details about our shareholding structures in Thailand and “Item 3. Key Information—D. RiskFactors—Business and Operational Related Risks—Other Operational Risks—We rely on structural arrangements to establish control over certain entities andgovernment authorities may determine that these arrangements do not comply with existing laws and regulations. We are also subject to other risks relating to suchstructural arrangements.”Regulations on Foreign ExchangeThe legal basis for foreign exchange control in Thailand is derived from the Exchange Control Act, B.E. 2485 (1942), as amended, and the MinisterialRegulation No. 13 (B.E. 2497 (1954)).In order to control the volume of foreign currency in Thailand and promote the stability of the Thai baht, foreign exchange regulations in Thailand state thatall foreign exchange transactions, including those involving purchases, sales, exchanges and transfers, shall be conducted through commercial banks and throughauthorized non-banks, namely authorized money changers, money transfer agents, and companies, that are granted foreign exchange licenses from the Minister ofFinance of Thailand. There is no limit on the remittance of foreign currency into Thailand; nevertheless, remittance of foreign currency to outside of Thailand isprimarily limited to the value of the underlying transaction. Prior approval from the Bank of Thailand may be necessary if the transaction is beyond what is allowedunder the regulations. Failure to comply with the laws and regulations will lead to a fine and/or imprisonment. We only remit foreign currency out of our Thailandoperations through commercial banks and authorized non-banks with the requisite licenses and obtain separate approval from the Bank of Thailand for suchtransactions (if required).Regulations on Dividend DistributionsDividend distributions by private companies incorporated in Thailand are governed by the Civil Commercial Code and the Thai Revenue Code. Dividendsshall only be distributed out of a company’s retained earnings. A company looking to distribute dividend is required to set aside at least 5% of its retained earningsinto a legal reserve fund at the time the dividend is paid until and unless the legal reserve fund reaches 10% of the company’s registered capital.The dividend distributed to a company’s shareholders is subject to a 10% withholding tax. The withholding tax may be exempt or reduced depending on therules and regulations of the Thai Revenue Code and the double taxation agreements that Thailand has entered into with other countries.Regulations on Game BusinessesDigital game and game distributing businesses, either for personal computers or mobile phones, are governed by the Film and Video Act B.E. 2551 (2008), asamended, or the Film and Video Act. Digital games are treated as videos under the Film and Video Act. Digital games to be exhibited, exchanged or distributed inThailand shall be reviewed and approved by the Thailand Film and Video Censorship Committee. Updates and amendments to previously approved digital games willbe regarded as new games and subject to the review and approval by the Film and Video Censorship Committee. Companies engaging in the game distributingbusiness are required to obtain a game distributing license under the Film and Video Act unless the games are offered for free. We have arranged for obtaining theapprovals of the games we exhibit and their updated versions from the Film and Video Censorship Committee regularly.68Table of ContentsRegulations on E-commercePursuant to the Commercial Registration Act, B.E. 2499 (1956), as amended, or the Commercial Registration Act, and the Notification Regarding RequiringBusiness Operators to Register their Businesses No. 11, issued by the Ministry of Commerce in 2010, or Notification No. 11, an e-commerce business operators,including the companies engaging in the sale and purchase of goods or services using electronic devices via the internet and e-marketplace, are required to register itsbusiness with the Ministry of Commerce of Thailand. We have registered our Shopee e-commerce marketplace business with the Ministry of Commerce.Pursuant to the Direct Sale and Direct Marketing Act B.E. 2545 (2002), as amended, or the Direct Sale and Direct Marketing Act, companies engaging in directsales or direct marketing are required to register its business with the Secretariat General of the Office of Consumer Protection or the officer appointed by theSecretariat General of the Office of Consumer Protection. We have made the required registration for our Shopee e-commerce marketplace in Thailand. Under the DirectSale and Direct Marketing Act, companies that operate an online marketplace are direct marketing companies and are required to ensure that documentationevidencing sales and purchases of goods and services on its online marketplace are provided and delivered to consumers. Such documentation shall be in the Thailanguage and contain information including due date, place and method of payment, place and method of delivery of goods or services, termination of contract,product return method, product warranty and exchange policy in case of damage or defect. Moreover, consumers have the right to cancel their purchases made on anonline marketplace within seven days from the date of receipt of the purchased goods or services.In addition, direct marketing companies must comply with the relevant ministerial regulations and any applicable laws on consumer protection regarding theiradvertisements.Regulations on Consumer ProtectionThailand’s consumer protection laws include the Consumer Protection Act B.E. 2522 (1979), as amended, the Unfair Contract Terms Act, B.E. 2540 (1997), theProduct Liability Act B.E. 2551 (2008) and the Consumer Case Procedure Act B.E. 2551 (2008). Such laws aim to promote greater transparency and more accuratedisclosures regarding products and services, adequate compensation if consumers are harmed by a product or service and fair transaction terms between sellers andbuyers.Regulations on E-payment ServicesIn Thailand, electronic transactions and e-payment services are governed by several governmental authorities and regulations including, the ElectronicTransaction Commission, or the ETC, the Governor of the Bank of Thailand or his or her designee, the Electronic Transactions Act, B.E. 2544 (2011), as amended, andthe Payment Systems Act, B.E. 2560 (2017).Regulated e-payment services businesses include: (i) credit card, debit card, or ATM card services; (ii) e-money services; (iii) service of receiving electronicpayment for and on behalf of sellers, service providers or creditors; (iv) service of transferring money by an electronic means; and (v) other payment services whichmay affect financial system or public interest.Our digital financial services business in Thailand has obtained e-payment service business licenses for (i) electronic money services, (ii) electronic paymentservices through any device or network, and (iii) payment services. In addition, we have also obtained an e-money card license from the Ministry of Finance inaccordance with the Notification of the Revolution Council No. 58, dated January 26, 1972, or the Notification of the Revolution Council No. 58, which mandated thate-money card service businesses require approval from the relevant authority.Under the Payment Systems Act, an operator seeking to operate a regulated payment system or regulated payment service, which includes e-paymentservices, is required to have a license before operating such business. Under the Payment Systems Act, a business operator who has been granted e-paymentbusiness licenses under prior regulations must have filed its application for license or the application for registration with the Bank of Thailand before August 13,2018. Upon filing such applications within the prescribed period, the operator is entitled to operate the businesses indefinitely until the Minister of the Ministry ofFinance or the Bank of Thailand instruct otherwise. In this regard, the Bank of Thailand has issued several regulations regulating businesses operating regulatedpayment systems and services. As an existing license holder, we filed our application within the prescribed period and have obtained the new license under thePayment Systems Act to operate e-payment services.69Table of ContentsAny non-compliance with the regulations regarding the regulated payment system or the regulated payment services will be subject to monetary fines and,depending on the severity of the non-compliance, may result in the suspension or revocation of the relevant licenses obtained under such regulations.In addition, on January 18, 2021, the Bank of Thailand issued the Notification of the Bank of Thailand No. SorNorChor 1/2564 (2021) Regarding the Guidelineon Supervision of Information Technology Risk in accordance with the Laws on Payment System requiring the designated payment services providers to arrangeappropriate IT governance, IT security controls, and IT risk management. Under the Notification, the provisions regarding cyber hygiene will be effective from April29, 2021 onwards and provisions regarding IT risk management will be effective from January 29, 2022 onwards.Regulations on Nano FinancingThe Ministry of Finance promulgated the Notification Regarding Businesses that Require a Permit According to Section 5 of the Notification of theRevolution Council No. 58 (Nano Finance), or the Nano Finance Notification, which requires a nano finance business operator to obtain an approval from the Ministerof Finance through the Bank of Thailand. The Nano Finance Notification also stipulates that loan proceeds from nano financing may only be used for business-relatedpurposes in order to boost opportunities to small business owners. Our subsidiary engaging in digital financial services business in Thailand has obtained the nanofinance license from the Ministry of Finance in accordance with the Nano Finance Notification.We have obtained an approval to operate nano finance business and provide nano financing to selected AirPay counters in Thailand. Our nano financebusiness is subject to certain restrictions imposed by the Bank of Thailand, the government authority overseeing nano finance businesses. The Bank of Thailandpromulgated the Notification No. SorNorSor 13/2563 (2020) Regarding the Rules, Procedures and Conditions for the Operation of Nano Finance Businesses. Undersuch notification, operators of nano finance businesses should take into account the borrower’s ability to repay the loan (which is unsecured) and consider a creditlimit for each borrower. The maximum credit limit shall not exceed THB100,000 (US$3,331), and the interest rate, together with fees and penalties, shall not exceed 33%per annum. In addition, the nano finance business operator shall maintain a debt-to-equity ratio of seven times or less throughout its operation.Regulations on Personal LoansPersonal loan operators are subject to the Notification regarding Businesses that Require a Permit According to Section 5 of the Notification of theRevolution Council No. 58 (Supervised Personal Loan), as amended, and its implementation rules promulgated by the Bank of Thailand, or collectively, the SupervisedPersonal Loan Notification. According to the Supervised Personal Loan Notification, a company providing uncollateralized personal loans for no specific purpose toindividuals is required to obtain a supervised personal loan business license. Our subsidiary engaging in the digital financial services business in Thailand hasobtained a supervised personal loan business license from the Ministry of Finance in accordance with the Supervised Personal Loan Notification.According to the Notification of the Bank of Thailand No. SorNorSor 12/2563 (2020), the Bank of Thailand, as the competent authority under the SupervisedPersonal Loan Notification, requires that the credit limit for personal loans should not exceed one and a half or five times the average monthly income of the borroweror the average monthly balance in the borrower’s deposit account, in the case where the average income is below or over THB30,000 (US$999) a month, respectively,at a financial institution for the six month period immediately before the date on which the personal loan is granted. Moreover, the interest rate for personal loans,together with fees and penalties, shall not exceed 25% per annum.Regulations on Digital LendingAny personal loan operators under the Supervised Personal Loan Notification, who use digital technology and alternative data to facilitate provision of loansin regards to the assessment of the ability or willingness to repay the loan, disbursement and repayment, and disclosure of information, are subject to the Notificationof the Bank of Thailand No. TorPorTor.ForGorSor.(01)Vor. 977/2563 (2020) Regarding the Rules, Procedures and Conditions for the Undertaking of Digital PersonalLoan Business, or the Digital Personal Loan Notification. Pursuant to the Digital Personal Loan Notification, the personal loan operators intending to undertake thedigital personal loan business must notify the Bank of Thailand before commencing its business. The maximum credit limit for digital personal loans granted to eachborrower shall not exceed THB20,000 (US$666) with the repayment period not exceeding 6 months, regardless of financial condition, income or balance in the depositaccount of the borrower.70Table of ContentsRegulations on Intellectual Property RightsIntellectual property laws in Thailand are comprised of the Copyrights Act, B.E. 2537 (1994), as amended, Trademark Act B.E. 2534 (1991), as amended, PatentAct B.E. 2522 (1979), as amended, Trade Secret Act, B.E. 2545 (2002), as amended, and Optical Disc Production Act, B.E. 2548 (2005).Trademarks registered outside of Thailand are not automatically protected under Thai laws. Protection will be granted to trademarks registered with theDepartment of Intellectual Property of the Ministry of Commerce of Thailand. In contrast, original works of authorship will receive copyright protection the momentthey are created. Computer software will be protected under the Thailand Copyright Act. An infringement of intellectual property rights may lead to civil and/orcriminal liabilities.Regulations on Anti-money Laundering and Prevention of Terrorism FinancingThe key regulation for anti-money laundering and counter-terrorist financing is the Money Laundering Prevention and Suppression Act, B.E. 2542 (1999), asamended, which imposes reporting obligations on certain types of business operations for (i) any transactions that reach certain thresholds which vary depending onthe type of transactions involved; and (ii) suspicious transactions. Personal loan business operators and e-payment business operators are required to apply theknow-your-client measures when the value of transaction(s) is (i) THB500,000 (US$16,656) or more for any single bill payment; (ii) THB50,000 (US$1,666) or more forany e-money or electronic money transfer; or (iii) THB100,000 (US$3,331) or more for other single or cumulative transactions. In addition, personal loan operators ande-payment service business operators need to have procedures relating to customer due diligence in place to ensure that its services are not being used by membersof groups identified as terrorists by the United Nations Security Council Resolutions.Regulations on LaborLabor matters are mainly governed by the Thai Civil and Commercial Code and the Thai Labor Protection Act, B.E. 2541 (1998), as amended, and itssubsequent notifications. The laws stipulate relationship between the employer and the employees in essential aspects, including working hours, leaves, wages,employment termination and severance payment, etc. The employment arrangement can be made verbally and is not required in writing.Under the Thai Labor Protection Act, it’s mandatory for employers to establish work rules when 10 or more employees are hired and it shall cover thefollowing issues: (i) working days, normal working hours and rest period; (ii) holidays and rules governing the taking of holidays; (iii) rules governing overtime andholiday work; (iv) the day and place where wages, overtime pay, holiday pay and holiday overtime pay are to be made; (v) leave and rules governing the taking ofleave; (vi) discipline and disciplinary measures; (vii) lodging of grievances; and (viii) termination of employment, severance pay and special severance pay.Regulations on Personal Data ProtectionOn May 28, 2019, the Personal Data Protection Act B.E. 2562 (2019) became effective, except that Chapter 2 (Personal Data Protection), Chapter 3 (Rights ofthe Data Subject), Chapter 5 (Complaints), Chapter 6 (Civil Liability) and Chapter 8 (Penalties) of such law, collectively, the Delayed Provisions, took effect from May27, 2020. Due to a general lack of readiness by both public and private sectors to comply with the Personal Data Protection Act, a majority of businesses will not besubject to the Delayed Provisions until May 30, 2021 pursuant to the Royal Decree on Agencies and Businesses Not Subject to the Personal Data Protection Act, B.E.2563 (2020). Personal data collected from our conduct of businesses fall within the scope of the Personal Data Protection Act.The Personal Data Protection Act applies to the collection and processing of personal data, including but not limited to the collection, use, disclosure ortransfer by a data controller or a data processor. As the law has extraterritorial enforcement, data controllers and data processors both in and outside of Thailand maybe subject to this regulation.71Table of ContentsIn addition, data controllers are required to inform data subjects of the purpose of their collection and subsequent processing of the personal data collected,and obtain consents for such collection or processing, unless otherwise provided in the Personal Data Protection Act.SingaporeRegulations on Dividend DistributionsThe governing legislation for the distribution of dividends in Singapore is the Companies Act. Under Section 403 of the Companies Act, a Singaporecompany is only allowed to pay dividends out of profits and there are certain restrictions on the use of profits for the purposes of dividend declaration. Firstly, anyprofits of a company applied towards the purchase of its shares pursuant to the share buyback provisions under the Companies Act cannot be payable as dividendsto the shareholders. The foregoing restriction does not apply to any part of the proceeds from a resale of treasury shares where the sums that were utilized topurchase those treasury shares initially came out of profits in the first place. Finally, any gains derived from the sale of treasury shares cannot be payable as dividendsto the shareholders of the company.In addition to complying with the Companies Act, the payment of dividends must also be in accordance with the company’s constitution and the generallyacceptable accounting principles in Singapore.Regulations on Information TechnologyRegulation of Internet ContentThe Singapore Broadcasting Act prohibits the provision of certain broadcasting services, including internet content, in or from Singapore without a licenseissued by the Infocomm Media Development Authority. The Infocomm Media Development Authority is the regulator of the information, communications and mediasectors in Singapore. The Singapore Broadcasting Act sets out an automatic class licensing scheme for computer online services provided by internet contentproviders. An internet content provider includes a corporation which provides any program for business purposes on the internet.Internet content providers are in general mandated to be automatically class licensed without any need to make specific applications to the Infocomm MediaDevelopment Authority, and are required to comply with the conditions of the class license and the Internet Code of Practice. As an internet content provider, we areobliged to use our best efforts to ensure that prohibited material (which refers to material that is objectionable on the grounds of public interest, public morality, publicsecurity, national harmony, offends good taste or decency, or is otherwise prohibited by applicable Singapore laws) is not broadcast via the internet to users inSingapore, and we are also required to deny access to any prohibited material if directed to do so by the Infocomm Media Development Authority. If we contravenethe class license conditions or the Internet Code of Practice, we may face administrative sanctions such as suspension or cancelation of our license, or fines.In addition, to the extent that our platforms or services enable our users to transmit online content to each other or access third party online content, wewould be an internet intermediary under the Protection from Online Falsehoods and Manipulation Act 2019, or POFMA. POFMA empowers any Singaporegovernment minister to direct the POFMA Office to issue certain directions to internet intermediaries whose internet intermediary service had been used tocommunicate a false statement of fact in Singapore, if the minister is of the opinion that it would be in the public interest to do so. Such directions would include: (a)targeted correction directions, which require the internet intermediary to communicate a correction notice on its service to all end-users in Singapore who accessed theoffending false statement of fact after a specified time; and (b) disabling directions, which require the internet intermediary to disable access by end-users inSingapore to the offending false statement of fact being communicated on or through its service. Companies may be fined if they fail to comply with directions issuedunder POFMA without reasonable excuse.72Table of ContentsRegulations on Imported Games and Game OperatingVideo Game ClassificationPursuant to Singapore’s Films Act, the Board of Film Censors of the Infocomm Media Development Authority is responsible for classifying films, videos andvideo games distributed in Singapore. In particular, it administers the video game classification system under the Films Act, which requires businesses importing ordistributing physical copies of video games in Singapore to submit the video games to the Infocomm Media Development Authority for rating and classification.However, the video game classification system does not apply to games which are only available via internet download. Since the online games that we offer areavailable only through online platforms, we in general are not subject to the video game classification system. However, the Infocomm Media Development Authorityretains the right to issue a rating and/or classification of any of the online games we offer, should it choose to do so.Films RegulationThe Films Act imposes a regulatory requirement for an organization to hold a license for carrying on the business of importing, making, distributing orexhibiting films. A film is defined to include a video recording for use as a game. The Films (Video Games Exemption) Notification 2008 exempts a video gamedistributor from having to comply with the abovementioned requirement to obtain a license. There remains some uncertainty with respect to whether the exemptioncovers an online game operator as the words ‘video games’ are neither defined in the Films Act nor in the aforesaid exemption. This is due to the contents of the FilmsAct and its related regulations not being drafted specifically for the digital age of online games. Further, due to the latter reason, there is uncertainty on whether anonline game needs to be submitted to the Board of Film Censors for censorship evaluation prior to distribution. In the opinion of Rajah & Tann Singapore LLP, ourcounsel as to Singapore law, it is consistent with market practice that we treat our online games as video games and do not apply for the film license or submit ouronline games for censorship evaluation.Regulations on E-commerceConsumer ProtectionThere are various general consumer protection laws in place in Singapore, which apply generally to all relevant transactions including electronic transactions,but are not specifically targeted at regulating e-commerce operations. One or more of these laws would be relevant in the context of online game operations or e-commerce operations.The Consumer Protection (Fair Trading) Act sets out a legislative framework to allow consumers aggrieved by unfair practices to have recourse to civilremedies before the Singapore courts. The definition of supplier under the Consumer Protection (Fair Trading) Act includes persons who promote the use or purchaseof goods or services which we do through our digital entertainment and e-commerce platforms. Suppliers may be held liable for engaging in unfair practices in relationto consumer transactions. Unfair practices include, among other things: (i) doing or saying anything which would reasonably deceive or mislead consumers, (ii)making a false claim, (iii) taking unreasonable advantage of a consumer, or (iv) making various forms of misrepresentations to the consumer.The Consumer Protection (Trade Descriptions and Safety Requirements) Act prohibits the use of false trade descriptions on goods supplied in the course oftrade. Trade descriptions include any description, statement or indication that directly or indirectly relates to the fitness for purpose, strength, performance, behavioror accuracy of any goods. This prohibition applies to all persons in the course of business and would be applicable in an e-commerce marketplace. Violations of theConsumer Protection (Trade Descriptions and Safety Requirements) Act are subject to criminal liability.Regulations on E-paymentThe Monetary Authority of Singapore regulates payment service providers and payment systems in Singapore under the Payment Services Act 2019 whichcame into effect on January 28, 2020. Under the Payment Services Act 2019, a license from the Monetary Authority of Singapore is required for providing any type ofpayment service in Singapore unless such service is exempted under the law. The payment services regulated under the Payment Services Act 2019 are “accountissuance service,” “domestic money transfer service,” “cross-border money transfer service,” “merchant acquisition service,” “e-money issuance service,” “digitalpayment token service” and “money-changing service.” In particular, “e-money issuance service” means the service of issuing e-money to any person for the purposeof allowing a person to make payment transactions and “account issuance service” includes the service of issuing a payment account to any person in Singapore.Pursuant to the Payment Services (Exemption for Specified Period) Regulations 2019, certain entities who satisfied the relevant criteria and submitted a notification tothe Monetary Authority of Singapore within the specified timeframe were exempt from holding a license under the Payment Services Act 2019 for the specific paymentservice(s) for a specified period. For entities that notified the Monetary Authority of Singapore, the exemption ceased on July 28, 2020 (for digital payment tokenservices) or January 28, 2021 (for all other newly regulated payment services), unless the entity submitted a license application under the Payment Services Act 2019to carry on business of providing the relevant payment service(s) before that date, in which case the exemption with respect to those payment service(s) will cease onthe date that the application is approved, rejected by the Monetary Authority of Singapore, or withdrawn.73Table of ContentsA licensee under the Payment Services Act 2019 is required to comply with the requirements under the Act and its subsidiary legislations, as well as allapplicable notices and guidelines issued by the Monetary Authority of Singapore (including but not limited to Notice PSN01 Prevention of Money Laundering andCountering the Financing of Terrorism – Holders of Payment Services Licence (Specified Payment Services) and/or Notice PSN02 Prevention of Money Launderingand Countering the Financing of Terrorism – Holders of Payment Service Licence (Digital Payment Token Service)). One of such requirements imposed upon a licenseeunder the Payment Services Act 2019 is to provide the Monetary Authority of Singapore with all such information relating to its business of providing any paymentservice as the Monetary Authority of Singapore may specify by notice in writing. Further, pursuant to Notice PSN01 Prevention of Money Laundering and Counteringthe Financing of Terrorism – Holders of Payment Services Licence (Specified Payment Services), unless otherwise exempted, the holder of a license under the PaymentServices Act 2019 to provide a specified payment service (i.e. “account issuance service,” “domestic money transfer service,” “cross-border money transfer service”or “money-changing service”) must, amongst various things, perform due diligence measures to establish and verify the identity of each customer; maintain data,documents and information relating to transactions; submit reports on suspicious transactions to the Suspicious Transactions Reporting Office; and implementinternal policies, procedures and controls to help prevent money laundering and terrorism financing. A licensee under the Payment Services Act 2019 will also need tocomply with the directions and/or regulations issued by the Monetary Authority of Singapore under Section 27A of the Monetary Authority of Singapore Act inrelation to dealing with assets of and/or imposing sanctions on designated persons.In addition to the above, the Payment Services (Amendment) Bill was passed in parliament in 2021 but has not come into operation. It will come intooperation on a date that the Minister appoints by notification in the Gazette. The Payment Services (Amendment) Bill makes amendments to the Payment Services Act2019. The amendments include but are not limited to widening the definition of “cross border money transfer service” to include transmission of money between twocountries, arranged by a payment service provider in Singapore; and widening the definition of “domestic money transfer service” such that the definition appliesexcept where both the payer and payee of a transaction executed under the service are financial institutions.Regulations on Digital BankingWe have been selected to be awarded a digital full bank, or DFB, license in Singapore (but have not been awarded such license as of the date of this annualreport). If and when we are awarded the DFB license and our DFB is operationalized, it will be allowed to conduct banking business in Singapore, including takingdeposits from and providing banking services to retail and non-retail customer segments.The Monetary Authority of Singapore, or MAS, will regulate DFBs under the Banking Act (Chapter 19 of Singapore) and its subsidiary legislation, notices,etc., with certain modifications (such as those set out in the publication “Eligibility Criteria and Requirements for Digital Banks” issued by the MAS). Generally, a DFBwill be subject to the full range of laws and regulations that apply to existing full banks licensed by the MAS. These include meeting the minimum paid-up capitalrequirement set by the MAS, eventually reaching S$1.5 billion (US$1.1 billion) once the DFB is fully functioning, regulations around unsecured lending, anti-moneylaundering and countering the financing of terrorism, economic sanctions, corporate governance, risk management and prudential requirements, although certain ofthese rules will be eased in until the DFB is fully functioning.A DFB will commence operations as a restricted DFB before eventually becoming a fully functioning DFB. The pace of growth of a restricted DFB will dependon its ability to meet its commitments and MAS’ other supervisory expectations. However, the MAS generally expects a DFB to be fully functioning within three tofive years from commencement of business.74Table of ContentsRegulations on Data Protection and Information SecurityPersonal Data ProtectionThe Personal Data Protection Act of Singapore governs the collection, use and disclosure of the personal data of individuals by organizations, and isadministered and enforced by the regulator, the Personal Data Protection Commission. It sets out data protection obligations which all organizations are required tocomply with in undertaking activities relating to the collection, use or disclosure of personal data. A failure to comply with any of the above can subject anorganization to a fine of up to S$1 million (US$756,773) per breach.An online game operator or e-commerce company is required to comply with the Personal Data Protection Act. Among other things, such company isrequired to obtain consent from its customers and inform them of the applicable purposes before collecting, using or disclosing their personal data. Moreover, it isalso required to put in place sufficient measures to protect the personal data in its possession or control from unauthorized access, loss or damage.Pursuant to the Personal Data Protection Commission’s Advisory Guidelines on the Personal Data Protection Act for NRIC and other National IdentificationNumbers that was issued in August 2018, an organization such as an online game operator or e-commerce company is not permitted to collect, use or disclose anindividual’s identification number unless under certain exceptions. The Personal Data Protection Commission has commenced enforcement of these Guidelines fromSeptember 2019.In the event of a data breach involving any personal data in an organization’s possession or control, the Personal Data Protection Act requires theorganization to reasonably and expeditiously assess the data breach, and notify the Personal Data Protection Commission of the data breach if it is assessed to be onethat: (a) is likely to result in significant harm or impact to the individuals to whom the information relates, or (b) involves personal data of 500 or more individuals. Inaddition to notifying the Personal Data Protection Commission, organizations are also required to notify the affected individuals if the data breach is one that is likelyto result in significant harm or impact to the affected individuals.Regulations on Intellectual Property RightsThe Intellectual Property Office of Singapore administers the intellectual property legislative framework in Singapore, which includes copyrights, trademarksand patents. Singapore is a member of the main international conventions regulating intellectual property matters, and the WTO’s Agreement on Trade RelatedAspects of Intellectual Property Rights.CopyrightPursuant to the Copyright Act of Singapore, authors of protected works enjoy various exclusive rights, including the rights of reproduction andcommunication to the public. An author will automatically enjoy copyright protection as soon as he creates and expresses an original work in a tangible form. There isno need to file for registration to obtain copyright protection. Copyright works sent over the internet or stored on web servers are treated in the same manner ascopyright material in other media. Online games and computer programs would qualify for such copyright protection, for example, as literary works, artistic worksand/or cinematograph films.Trade MarksSingapore operates a first-to-file system in respect of registered trademarks under the Trade Marks Act of Singapore, and the registered proprietor is granteda statutory monopoly of the trade mark in Singapore in relation to the product or service for which it is registered. In the event of any trade mark infringement, theregistered proprietor will be able to rely on the registered trade mark as proof of his right to the mark, and the infringement of a trade mark may give rise to civil andcriminal liabilities. Statutory protection of a registered trade mark can last indefinitely, as long as the registration is renewed every 10 years.75Table of ContentsPatentsThe Patents Act of Singapore confers protection on patentable inventions on a first-to-file basis in Singapore, provided that the invention satisfies therequirements of novelty, having an inventive step and industrial applicability. Patents are valid for 20 years from the date of filing, subject to the payment of annualrenewal fees. During the life of the patent, the owner will have the exclusive right to exploit the invention that is the subject of the patent.Regulations on Anti-money Laundering and Prevention of Terrorism FinancingThe primary anti-money laundering legislation in Singapore is the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act, orCDSA, provides for the confiscation of benefits derived from, and to combat, corruption, drug dealing and other serious crimes. Generally, the CDSA criminalizes theconcealment or transfer of the benefits of criminal conduct as well as the knowing assistance of the concealment, transfer or retention of such benefits.The Terrorism (Suppression of Financing) Act, or TSOFA, is the primary legislation for the combating of terrorism financing. It was enacted to give effect tothe International Convention for the Suppression of the Financing of Terrorism. Besides criminalizing the laundering of proceeds derived from drug dealing and otherserious crimes and terrorism financing, the CDSA also requires suspicious transaction reports to be lodged with the Suspicious Transaction Reporting Office and theTSOFA requires information about any property belonging to any terrorist or terrorist entity to be reported to the Commissioner of Police. If any person fails to lodgethe requisite reports under the CDSA and the TSOFA, it may be subject to criminal liability.Regulations on LaborThe Employment Act of Singapore generally extends to all employees regardless of their designation, salary level or type of work performed, with theexception of certain groups of employees. It provides employees falling within its ambit certain protections such as minimum notice periods, maximum working hours,maximum amount of deductions from wages, minimum holidays and rest days, maternity/paternity leave, paid childcare leave, sick leave, etc. The Employment Act alsoapplies to employees who are foreigners so long as they fall within the definition of “employee” under the Employment Act. In addition, the employment of foreignmanpower in Singapore is also governed by the Employment of Foreign Manpower Act of Singapore. Aside from minimum benefits in respect of the aforesaid terms ofemployment in the Employment Act, employees in Singapore are entitled to contributions to the central provident fund by the employer as prescribed under theCentral Provident Fund Act of Singapore. The specific contribution rate to be made by employers varies depending on whether the employee is a Singapore citizen orpermanent resident in the private or public sector and the age group and wage band of the employee. Generally, for employees who are Singapore citizens in theprivate sector or non-pensionable employees in the public sector, 55 years old or below and that earn more than S$750 (approximately US$568) a month, theemployer’s contribution rate is 17% of the employee’s wages.C.Organizational StructureSea Limited is a holding company that does not have substantive operations. As of March 5, 2021, we conduct our business operations across 223subsidiaries and branch offices, and 21 consolidated affiliated entities. Our significant subsidiaries, as that term is defined in Rule 1-02(w) of Regulation S-X, includethe following entities (in chronological order based on their dates of incorporation):●Garena Online Private Limited, our wholly-owned subsidiary established in Singapore operating our digital entertainment business in Singapore;●Shopee Limited, our wholly-owned subsidiary established in the Cayman Islands holding certain of our e-commerce subsidiaries;●Shopee Singapore Private Limited, our wholly-owned subsidiary established in Singapore operating our e-commerce business in Singapore; and●PT Shopee International Indonesia, our wholly-owned subsidiary established in Indonesia operating our e-commerce business in Indonesia.76Table of ContentsContractual Arrangements among Our VIEs, Their Shareholders and UsThe laws and regulations in some of our markets place restrictions on foreign investment in and ownership of entities engaged in a number of businessactivities. To comply with the relevant laws and regulations, we and certain of our wholly-owned subsidiaries in the Cayman Islands and Singapore have entered intoa series of contractual arrangements with certain VIEs and their shareholders who are local citizens. For the year ended December 31, 2020, revenue from all our VIEs(which excludes entities for which we have majority direct equity ownership) accounted for 12.9% of our total revenue. None of our VIEs is individually a significantsubsidiary as defined in Rule 1-02(w) of Regulation S-X.The contractual arrangements allow us to:●exercise effective control over our VIEs, including the ability to direct the VIE shareholders to vote at our direction and have the ability to replace each ofthem as a VIE shareholder;●receive substantially all of the economic benefits and absorb losses of our VIEs; and●have an exclusive call option to purchase all or part of the equity interests in and/or assets of our VIEs when and to the extent permitted by the relevantlaws.As a result of these contractual arrangements, we are the primary beneficiary of these VIEs and have consolidated their financial results in our consolidatedfinancial statements in accordance with U.S. GAAP. However, these contractual arrangements may not be as effective in providing operational control as directownership and the use of the contractual arrangements in some jurisdictions where we operate exposes us to certain risks. See “Item 3. Key Information—D. RiskFactors—Business and Operational Related Risks—Other Operational Risks—We rely on structural arrangements to establish control over certain entities andgovernment authorities may determine that these arrangements do not comply with existing laws and regulations. We are also subject to other risks relating to suchstructural arrangements.”The following is a summary of the currently effective contractual arrangements by and among us, our VIEs and their respective shareholders.Contracts that Give Us Effective Control of the VIEsLoan AgreementsIn order to ensure that the shareholders of our VIEs are able to provide capital to each of these entities in order to develop its business, we have entered intoloan agreements with each shareholder. Pursuant to the loan agreements, we have granted loans to the shareholders that may only be used for the purpose ofacquiring equity interests in or contributing to the registered capital of these entities. The time and manner for repayment of the loans are at the sole discretion of ourlending entity. The loans may be repaid only by the shareholders transferring all of their equity interests in the VIE to us or our designee upon our exercise of theoptions under the exclusive option agreements. The loan agreements also prohibit the shareholders from assigning or transferring to any third party, or from creatingor causing any security interest to be created on, any part of their equity interests in these entities. In the event that the shareholders sell their equity interests to usor our designee at a price which is equal to or lower than the principal amount of the loan, the loan will be interest-free. If the price is higher than the principal amountof the loans, the excess amount will be deemed to be interest on the loans payable by the shareholders to us.77Table of ContentsExclusive Option AgreementsIn order to ensure that we are able to acquire all of the equity interests in our VIEs at our discretion, we have entered into exclusive option agreements withthe respective shareholders of these VIEs. Each option is exercisable by us at any time, provided that doing so is not prohibited by law. The exercise price under eachoption is the minimum amount required by law and any proceeds obtained by the respective shareholders through the transfer of their equity interests in these entitiesshall be used for the repayment of the loan provided by us in accordance with the loan agreements. During the terms of the exclusive option agreements, theshareholders will not grant a similar right or transfer any of the equity interests in these entities to any party other than us or our designee, nor will such shareholderpledge, create or permit any security interest or similar encumbrance to be created on any of the equity interests. According to the exclusive option agreements, theVIEs cannot declare any profit distributions or grant loans in any form without our prior consent. The shareholders must remit to us in full any funds suchshareholders receive from the VIEs in the event any distributions are made by the VIEs. The exclusive option agreements will remain in effect until the respectiveshareholder has transferred all of such shareholder’s equity interests in the VIE entity to us or our designee.Powers of AttorneyIn order to ensure that we are able to make all of the decisions concerning our VIEs, we have entered into powers of attorney with the shareholders of theseVIEs. Pursuant to the powers of attorney, each shareholder of our VIEs has irrevocably appointed us as such shareholder’s attorney-in-fact to act for all matterspertaining to such shareholder’s shareholding in the VIE entities and to exercise all of their rights as shareholders, including but not limited to attending shareholders’meetings and designating and appointing directors, supervisors, the chief executive officer and other senior management members of these entities, and selling,transferring, pledging or disposing the shares of these entities. We may authorize or assign our rights under this appointment to any other person or entity at our solediscretion without prior notice to or prior consent from the shareholders of these entities. Each power of attorney will remain in effect until these shareholder ceases tohold any equity interest in the relevant VIE.Equity Interest Pledge AgreementsIn order to secure the performance of our VIEs and their shareholders under the contractual arrangements, each of the shareholders of our VIEs have pledgedall of their shares to us. These pledges secure the contractual obligations and indebtedness of such VIE shareholders, including all penalties, damages and expensesincurred by us in connection with the contractual arrangements, and all other payments due and payable to us by the relevant VIE under the exclusive businesscooperation agreements, and by the VIE shareholders under the loan agreements, exclusive option agreements, and powers of attorney. Should the VIE or the VIEshareholder breach or default under any of the contractual arrangements, we have the right to require the transfer of such VIE shareholders’ pledged equity interestsin the relevant VIE to us or our designee, to the extent permitted by laws, or require a sale of the pledged equity interest and have priority in any proceeds from theauction or sale of such pledged interests. Moreover, we have the right to collect any and all dividends in respect of the pledged equity interests during the term of thepledge. Unless the relevant VIEs have fully performed all of their obligations in accordance with the exclusive business cooperation agreements and the pledgedequity interests have been fully transferred to us or our designee in accordance with the exclusive option agreements and the loan agreements, the equity interestpledge agreements will continue to remain in effect.Spousal Consent LettersUnder the spousal consent letters, each spouse of the married shareholders of our VIEs unconditionally and irrevocably agreed that the equity interest in therelevant entity held by and registered in the name of their spouse will be disposed of pursuant to the contractual arrangements. Each spouse agreed not to assert anyrights over the equity interest in these entities held by their spouse. In addition, in the event that the spouses obtain any equity interest in these entities held by theirspouse for any reason, they agreed to be bound by the contractual arrangements.All of the contractual arrangements as described above will be terminated once the respective shareholder has transferred all of such shareholder’s equityinterests in the VIE entity to us or our designee.78Table of ContentsContracts that Enable Us to Receive Economic Benefits or Absorb Losses from the VIEsExclusive Business Cooperation AgreementIn order to ensure that we receive the economic benefits of our VIEs, we have entered into exclusive business cooperation agreements with these entitiesunder which we have the exclusive right to provide or to designate any third party to provide, among other things, technical support, consulting services, intellectualproperty licenses and other services to these entities, and these entities agree to accept all the services provided by us or our designee. Without our prior writtenconsent, our VIEs are prohibited from directly or indirectly engaging any third party to provide the same or any similar services under these agreements orestablishing similar cooperative relationships with any third party regarding the matters contemplated by these agreements. In addition, we have exclusive andproprietary ownership, rights and interests in any and all intellectual properties arising out of or created during the performance of these agreements.Our VIEs agree to pay a monthly fee to us at an amount determined at our sole discretion after taking into account factors including the complexity anddifficulty of the services provided, the level of and time consumed by our employees or our designee for providing the services, the content and value of services andlicenses provided and the market price of the same type of services or licenses. These agreements will remain effective unless terminated in accordance with theirprovisions or terminated in writing by us. Unless otherwise required by applicable laws, these entities do not have any right to terminate these agreements in anyevent. We have the right to terminate the exclusive business cooperation agreements and/or require these entities to indemnify all damages in the event of anymaterial breach of any term of these agreements by them. These entities agree to indemnify and hold us harmless from any losses, injuries, obligations or expensescaused by any lawsuits, claims or other demands against us arising from or caused by the services that we provide to these entities pursuant to the exclusivebusiness cooperation agreements, except where such losses, injuries, obligations or expenses arise from our own gross negligence or willful misconduct.Financial Support Confirmation LettersIn order to ensure that our VIEs have sufficient cash flow to fund their daily operations and/or to set off any losses incurred in such operations, we haveentered into financial support confirmation letters with each of these entities. Under the financial support confirmation letters, we pledge to provide continuousfinancial support to these entities by ourselves or through our designees and agreed to forego our right to seek repayment in the event these entities are unable torepay such financial support or we become liable for the liabilities of these entities. These entities agree to accept such financial support and pledge to only use suchsupport to develop their respective businesses. To the extent permitted by law, the financial support we provide to these entities may take the form of loans,borrowings or guarantees.Based on opinions from our external legal counsels, we believe the ownership structure of our VIEs are generally in compliance with the local laws orregulations that are currently in effect, and each of the agreements among us, our VIEs and/or the local shareholders is valid, binding and enforceable, and do not andwill not result in any violation of such laws or regulations that are currently in effect.However, uncertainties in the relevant legal system could cause the relevant regulatory authorities to find the current contractual arrangements andbusinesses to be in violation of any existing or future relevant laws or regulations. In addition, if the VIEs or the shareholders of the VIEs fail to perform theirobligations under the contractual arrangements, we may have to incur substantial costs and expend resources to enforce our rights as the primary beneficiary underthe contracts. See “Item 3. Key Information—D. Risk Factors—Business and Operational Related Risks—Other Operational Risks—We rely on structuralarrangements to establish control over certain entities and government authorities may determine that these arrangements do not comply with existing laws andregulations. We are also subject to other risks relating to such structural arrangements.”Thailand Shareholding StructureEach of our operating entities in Thailand is established using a tiered structure that maximizes our equity interests in the entity while also complying with theThai law requirement that each Thai company has at least three shareholders and, without approval from Thai authorities, direct foreign ownership of share capital ofeach entity operating the restricted business under the Thai Foreign Business Act is limited to less than 50%. As Thai laws only consider the immediate level ofshareholding, no cumulative or look-through calculation is applied to determine the foreign ownership status of a company when it has several levels of foreignshareholding. Under this shareholding structure, our Thai operating entities are each owned by (i) a Thai entity, or Thai Holdco 1, holding slightly more than half ofthe shares, (ii) one of our employees holding one share, and (iii) one of our Cayman Islands or Singapore subsidiaries holding slightly less than half of the shares.Thai Holdco 1 is then owned by (i) another Thai entity, or Thai Holdco 2, (ii) the employee who holds one share in the Thai operating entity, and (iii) our CaymanIslands or Singapore subsidiary in the same shareholding proportions that our Thai operating entities are held. Thai Holdco 2 is in turn held by (i) one of ourIslands or Singapore subsidiary in the same shareholding proportions that our Thai operating entities are held. Thai Holdco 2 is in turn held by (i) one of ouremployees, who is a Thai citizen, holding preference shares equivalent to slightly more than half of the total number of shares, (ii) the employee who holds one sharein the Thai operating entity, holding one share, and (iii) our Cayman Islands or Singapore subsidiary holding ordinary shares equivalent to slightly less than half ofthe total number of shares. The preference shares have limited voting rights and the right to receive a fixed, non-cumulative dividend of an immaterial amount in theevent a dividend is declared. This structure allows us to effectively control nearly 100% of our Thai operating entities.79Table of ContentsIn the opinion of Kudun and Partners Company Limited, our counsel as to Thai law, the shareholding structure of our Thai operating entities is in compliancewith applicable Thai law. See “Item 3. Key Information—D. Risk Factors—Business and Operational Related Risks—Other Operational Risks—We rely on structuralarrangements to establish control over certain entities and government authorities may determine that these arrangements do not comply with existing laws andregulations. We are also subject to other risks relating to such structural arrangements.”D.Property, Plants and EquipmentOur headquarters and our principal technical development facilities are located in Singapore, where we have leased approximately 37,800 square meters ofoffice space, as of December 31, 2020. We also have local offices in Indonesia, Taiwan, Vietnam, Thailand, the Philippines, Malaysia, China, Brazil, and Mexico. InIndonesia, we have a right to build (Hak Guna Bangunan) on land of approximately 86,000 square meters, and are in the process of building a warehouse, which isexpected to have a construction floor area of approximately 72,000 square meters.The servers we currently use are hosted in leased data centers in different areas across our markets, as well as on cloud services. The data centers in ournetwork are owned and maintained for us by major domestic and international data center providers. We generally enter into leasing and hosting service agreementswith renewal terms. We believe that our existing facilities are sufficient for our current needs and we may need to obtain, usually by lease, adequate facilities toaccommodate any future expansion plans.ITEM 4A.UNRESOLVED STAFF COMMENTSNone.ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTSYou should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financialstatements and the related notes included elsewhere in this annual report. This discussion contains forward-looking statements that involve risks anduncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result ofvarious factors, including those set forth under “Item 3. Key Information—D. Risk Factors” and elsewhere in this annual report.A.Operating ResultsOverviewSea operates three key businesses—Garena, Shopee, and SeaMoney. Each of our businesses provides a distinct and compelling value proposition to ourusers, and each exhibits strong virtuous cycle dynamics. We believe these distinct characteristics support our leadership position and provide a strong foundation forcontinued growth while creating barriers to entry for our competitors. We develop, curate and localize the content and services on our platforms to serve a highlydiverse population across multiple markets and regulatory regimes.We have achieved significant scale and growth since our founding. Our total revenue increased from US$827.0 million in 2018 to US$4,375.7 million in 2020, aCAGR of 130.0%. We had gross profit of US$14.8 million, US$604.9 million and US$1,348.9 million in 2018, 2019 and 2020, respectively. We incurred net losses ofUS$961.0 million, US$1,457.7 million and US$1,624.2 million in 2018, 2019 and 2020, respectively, primarily due to our investments in expanding our businesses, inparticular our e-commerce and digital financial services businesses.80Table of ContentsMajor Factors Affecting Our Results of OperationsOur results of operations and financial condition are affected by the general factors driving the digital entertainment, e-commerce, digital financial servicesand other industries in our markets, including demographic and macroeconomic growth, technology adoption trends, and the digital transformation of industries.Our results of operations are also directly affected by certain factors specific to us, including the following:Size of Our User BaseOur revenue is largely driven by the number of users and the level of user engagement across our three businesses. In our digital entertainment business,due to our freemium business model, the higher the number of active users in our games, the larger the number of users likely to make in-game purchases. Likewise, inour e-commerce business, the larger the number of sellers and buyers on the platform, the larger the number and value of transactions which over time will driveadvertising and transaction-based fee revenue for us. Finally, in our mobile wallet business, the larger the number of paying users and the larger the number ofmerchants accepting SeaMoney’s payment options, the greater the potential transaction volumes that drive our commission revenue.User Engagement and MonetizationAs our level of user engagement increases, the potential for user spending and consequently our revenue also increases. A critical component of maximizingthe monetization potential of each of our businesses is providing high-quality content and services and pricing our content and services correctly. Monetization isalso dependent upon our ability to convert active users into paying users, and then increase revenue per paying user. For example:●In our digital entertainment business, our primary source of revenue is the sale of in-game items. We focus on developing and curating the best contentand localizing that content to cater to the tastes and preferences of each of our unique markets. We maximize the in-game user experience to keep ourusers highly engaged and increase the likelihood of in-game spending so as to maximize revenue. To do so, we provide a high-quality entertainmentexperience, adopt effective pricing strategies for each market and game, and leverage our platform’s cross-selling tools to support long-term userengagement with our games.●In our e-commerce business, we closely monitor the number of transactions per active buyer. We optimize the assortment of our product categories onour marketplace and build convenient tools to attract sellers. We monetize our e-commerce business mainly by offering sellers paid advertising services,charging transaction-based fees, and charging for certain value-added services. As our e-commerce marketplace grows, we may consider othermonetization methods in order to capture additional revenue streams. We also purchase products from manufacturers and third parties and sell themdirectly to buyers on our Shopee platform.●In our digital financial services business, we mainly monetize by charging commissions to third-party merchants with respect to our mobile walletservices, and by earning interests from borrowers with respect to our consumer credit business. We continually expand the number of use cases thataccept our mobile wallet services to create greater convenience for our users. We believe that increasing the variety of use cases, together with ourefforts to increase our mobile wallet user numbers and engagement, will lead to increases in the number of transactions through our mobile walletbusiness, and in turn the gross transaction value and commission income.The COVID-19 pandemic has affected and may continue to affect certain of our business activities and results. See “Item 3. Key Information—D. Risk Factors—Business and Operational Related Risks—Risks Applicable Across Multiple Businesses—The COVID-19 pandemic has affected our business activities and results.Any future occurrence of natural disasters, epidemics, pandemics or other outbreaks, or other catastrophic events could also adversely affect our business” for moredetails. As the COVID-19 situation remains fluid and continues to evolve, our business, financial condition and results of operations may continue to be affected inthe short- or long-term future.81Table of ContentsBenefits of Our PlatformsOur platforms benefit from internal dynamics that allow us to increase our scale and user engagement quickly and in a cost-effective manner. Our businessesenjoy network effects, virtuous cycles and synergies across our platforms.We benefit from the network effects resulting from the significant social aspects of our digital entertainment and e-commerce platforms. For example, becausegame players find it highly beneficial to join a platform with a large number of other game players, each new player that joins creates value for the existing community.This encourages current users to invite new users to our platform, which allows us to grow our user base with moderate acquisition cost and increases the likelihoodthat users will remain active and engaged and therefore spend on our platform.Each of our three businesses is a multi-sided platform which benefits from virtuous cycle dynamics. Thus, as our platforms grow, they become more valuableto each of our users and this increases their potential spending opportunities. For example, as the number of buyers on our Shopee platform increases, Shopee attractsan increasing number of sellers, resulting in increases in the volume and variety of products available on the platform, which increases the purchasing opportunitiesfor each of those buyers. This results in greater monetization potential as the size of each platform grows.Finally, synergies among our digital financial services business and each of our digital entertainment and e-commerce businesses allow us to increase ouruser base and monetization quickly and cost-effectively. For example, as our Garena game players and Shopee buyers increasingly complete transactions using ourmobile wallet services, our mobile wallet user base grows, which in turn attracts more merchants to join the mobile wallet network. As more third-party merchants joinSeaMoney’s network, our users become increasingly engaged with our platforms. At the same time, these users may also increasingly explore other services andproduct offerings available on our digital financial services platform.Optimization of Our Cost StructureOur cost and expense structure has several broad components: payment channel costs, royalties, amortized license fees and hosting costs for our digitalentertainment business; sales and marketing expenses, consisting primarily of customer acquisition and retention expenses, for our e-commerce and digital financialservices businesses; costs of logistics, including expenses for warehousing, for our e-commerce business; employee compensation and welfare costs and expenses,which are spread among different functions; and other costs and expenses across our businesses that are mainly fixed in nature. By offering our own mobile walletand payment processing services, we strive to effectively reduce our payment channel costs and capture value that may otherwise go to third-party payment serviceproviders. Our market leadership position in our digital entertainment business has enabled us to optimize our variable costs, as has our operating scale for e-commerce and digital financial services.We have made a strategic decision to invest in the growth of our Shopee marketplace by incurring sales and marketing expenses in advance of ourmonetization efforts. In addition, we are also investing in user acquisition of our SeaMoney business. We believe that taking a thoughtful approach to monetizationby building our user base and increasing engagement first will allow us to maximize our monetization in the future.Foreign Exchange RatesOur reporting currency is the U.S. dollar and changes in currency exchange rates may materially affect our reported results and consolidated trends. We earnrevenue denominated in Indonesian rupiah, New Taiwan dollars, Vietnamese dong, Thai baht, Philippine pesos, Malaysian ringgit, Singapore dollars, Brazilian real,U.S. dollars, Indian rupee and Mexican pesos, among other currencies, while some of our costs and expenses are paid in other foreign currencies. We do not rely onany single currency as we earn revenue in different local currencies across our markets and keep a significant cash position in U.S. dollars.Our expenses may become higher and our revenue and operating metrics may become lower than would be the case if exchange rates were stable or if wewere operating and reporting in one currency. For example, if the U.S. dollar weakens relative to currencies in our local markets, our revenue, operating expenses andGMV will be higher than if currencies had remained constant. Likewise, if the U.S. dollar strengthens relative to currencies in our local markets, our revenue, operatingexpenses and GMV will be lower than if currencies had remained constant. Movements in foreign currency exchange rates may have a material adverse effect on ourresults of operations, which may cause our financial and operational metrics reported in the U.S. dollar to be not fully representative of the underlying businessperformance. We believe that our diversification in geographic coverage benefits our shareholders over the long-term. We may also enter into foreign currencyderivative transactions to hedge potential foreign exchange risks. See “Item 3. Key Information—D. Risk Factors—Business and Operational Related Risks—RisksApplicable Across Multiple Businesses—Fluctuations in foreign currency exchange rates may adversely affect our operational and financial results, which we reportin U.S. dollars.”82Table of ContentsDescription of Certain Statement of Operations ItemsRevenueWe currently generate revenue primarily from our digital entertainment business and e-commerce business. The table below sets forth our revenuebreakdown. For the Year Ended December 31, 2018 2019 2020 US$ Percentageof TotalRevenue US$ Percentageof TotalRevenue US$ Percentageof TotalRevenue (thousands, except for percentages) Service revenue Digital Entertainment 462,464 55.9 1,136,017 52.2 2,015,972 46.1 E-commerce and other services 270,049 32.7 822,659 37.8 1,777,330 40.6 Sales of goods 94,455 11.4 216,702 10.0 582,362 13.3 Total revenue 826,968 100.0 2,175,378 100.0 4,375,664 100.0 The table below sets forth the revenue from external customers based on the geographical locations where the services were provided or goods were sold,both in absolute amount and as a percentage of total revenue for the periods indicated. For the Year Ended December 31, 2018 2019 2020 US$ Percentageof TotalRevenue US$ Percentageof TotalRevenue US$ Percentageof TotalRevenue (thousands, except for percentages) Southeast Asia 581,336 70.3 1,378,141 63.4 2,791,894 63.8 Rest of Asia 229,773 27.8 489,291 22.5 655,007 15.0 Latin America 14,713 1.8 282,618 13.0 790,308 18.1 Rest of the world 1,146 0.1 25,328 1.1 138,455 3.1 Total revenue 826,968 100.0 2,175,378 100.0 4,375,664 100.0 The continuous revenue growth from 2018 to 2020 was mainly attributable to the rapid growth of our e-commerce platform, as well as the increasingpopularity of our games, and in particular, the continued success of our self-developed game Free Fire.83Table of ContentsDigital EntertainmentWe generate revenue from our digital entertainment business primarily by selling in-game items to our game players. We recognize revenue ratably over theestimated delivery obligation period. Our revenue generated from digital entertainment accounted for 55.9%, 52.2% and 46.1% of our total revenue in 2018, 2019 and2020, respectively.The primary driver for revenue growth in our digital entertainment business is the size of our active user base and the level of user engagement. Due to thefreemium business model of our immersive games, the higher the number of active users on our games, the greater the likelihood of such users to make in-gamepurchases. Therefore, we believe QAU is a key metric to help us understand both the active user base and user engagement on our games. For example, our QAUsincreased from 216.2 million to 354.7 million and 610.6 million from the fourth quarter of 2018 to the fourth quarters of 2019 and 2020, respectively, which led to anincrease in the number of paying users, which in turn contributed significantly to our revenue growth during those periods. User base growth and engagement areprimarily driven by the launch of new games, the expansion of existing games into new markets, and the improvement and launch of new content in our existing games.See “Item 4. Information on the Company—B. Business Overview—Our Businesses—Garena Digital Entertainment Business—Game Players.”E-commerce and Other ServicesE-commerce and other services revenue consist of revenue generated from our e-commerce marketplace services, digital financial services, and other serviceson our platforms. Revenue from products owned and sold by us on our Shopee platform was recorded under sales of goods revenue as discussed below. Our e-commerce and other services revenue constituted 32.7%, 37.8% and 40.6% of our total revenue during 2018, 2019 and 2020, respectively.We monetize Shopee’s marketplace model mainly by offering sellers paid advertisement services, charging transaction-based fees, and charging for certainvalue-added services. We may also roll out other means of generating revenue to broaden our monetization avenues in the future.We generate revenue from our digital financial services business primarily from interest and fees from loans granted to commercial and consumer customers,and commissions charged to third-party merchants. We generally recognize our interest and fees, and commission from the transactions as revenue. Typically thecommission charged is either a fixed rate or a certain percentage of the transaction value flowing through the platform.Sales of GoodsSales of goods revenue mainly comes from our e-commerce business. While we primarily operate as a marketplace, we also purchase products frommanufacturers or third parties directly and sell on our Shopee platform under our official store to meet buyers' demand for such products. Bulk purchasing and directproduct sales for specific product categories also enable us to offer better product assortment and more competitive prices to our buyers.Cost of RevenueOur cost of revenue primarily consists of direct expenses in generating revenue from our businesses.Digital EntertainmentFor our cost of revenue for digital entertainment, the largest portion relates to channel cost which is generally paid as a percentage of gross billings, andrecognized as expenses over the performance obligation period, and a significant portion also relates to royalties, which are generally paid as a percentage of grossbillings from our licensed games, and other fees relating to our use of various third-party intellectual properties. Other costs include server and hosting costs, upfrontlicensing fees, which are fixed and amortized over the shorter of estimated useful life or game licensing period, staff compensation and welfare costs, which include theshare-based compensation, and other miscellaneous costs.84Table of ContentsE-commerce and Other ServicesOur cost of revenue for e-commerce services primarily consists of expenses associated with our logistics and other value-added services, bank transactionfees for transactions conducted through our Shopee platform, server and hosting costs, staff compensation and welfare costs, which include share-basedcompensation, and other miscellaneous costs.Our cost of revenue for digital financial services primarily consists of server and hosting costs, interest expenses for deposits payable, bank transaction feesfor transactions conducted through our SeaMoney platform, commissions we pay to counter operators, staff compensation and welfare costs, which include share-based compensation, and other miscellaneous costs.Sales of GoodsOur cost of revenue for sales of goods is mainly attributable to the goods we purchase from manufacturers and third parties and sell directly to buyers on ourShopee platform.Operating Income and ExpensesOur operating expenses consist of sales and marketing expenses, general and administrative expenses and research and development expenses, net of otheroperating income. The table below sets forth our operating expenses, both in absolute amount and as a percentage of total revenue, for the periods indicated. For the Year Ended December 31, 2018 2019 2020 US$ Percentageof TotalRevenue US$ Percentageof TotalRevenue US$ Percentageof TotalRevenue (thousands, except for percentages) Other operating income (9,799) (1.2) (15,890) (0.7) (189,645) (4.3)Sales and marketing expenses 705,015 85.3 969,543 44.6 1,830,875 41.8 General and administrative expenses 240,781 29.1 385,865 17.7 657,215 15.0 Research and development expenses 67,529 8.2 156,634 7.2 353,785 8.1 Total operating expenses 1,003,526 121.4 1,496,152 68.8 2,652,230 60.6 Other Operating IncomeOur other operating income consists primarily of rebates from e-commerce related logistic services provided by third parties.Sales and Marketing ExpensesOur sales and marketing expenses consist primarily of online and offline advertising expenses, promotion expenses, and staff compensation and welfareexpenses, which include share-based compensation for our employees engaged in sales and marketing functions. We expect to continue to incur significant sales andmarketing expenses as we grow our user base and increase user engagement on our platforms and games, and continue building brand awareness.85Table of ContentsGeneral and Administrative ExpensesOur general and administrative expenses consist primarily of facilities and other overhead expenses, depreciation and amortization expenses, impairmentlosses, provision for credit losses for our digital financial services businesses, external professional service expenses, and staff compensation and welfare expenses,which include share-based compensation for our employees engaged in general and administrative functions. We expect our general and administrative expenses toincrease for the foreseeable future as we grow our businesses.Research and Development ExpensesOur research and development expenses consist primarily of staff compensation and welfare expenses, which include share-based compensation for ouremployees engaged in product development functions. We believe continued investment in developing our platforms and content is extremely important to achievingour strategic objectives. As a result, we expect our research and development expenses to increase for the foreseeable future as we grow our business.Results of OperationsThe table below sets forth a summary of our consolidated results of operations for the periods indicated, both in absolute amounts and as percentages of ourtotal revenue. This information should be read together with our consolidated financial statements and related notes included elsewhere in this annual report. Theoperating results in any period are not necessarily indicative of the results that may be expected for any future period. For the Year Ended December 31, 2018 2019 2020 US$ Percentageof TotalRevenue US$ Percentageof TotalRevenue US$ Percentageof TotalRevenue (thousands, except for percentages) Selected Consolidated Statements of Operations Data: Revenue: Service revenue Digital Entertainment 462,464 55.9 1,136,017 52.2 2,015,972 46.1 E-commerce and otherservices 270,049 32.7 822,659 37.8 1,777,330 40.6 Sales of goods 94,455 11.4 216,702 10.0 582,362 13.3 Total revenue 826,968 100.0 2,175,378 100.0 4,375,664 100.0 Cost of revenue: Cost of service Digital Entertainment (267,359) (32.3) (435,905) (20.0) (702,329) (16.1)E-commerce and otherservices (446,281) (54.0) (907,518) (41.7) (1,743,773) (39.9)Cost of goods sold (98,570) (11.9) (227,035) (10.4) (580,657) (13.3)Total cost of revenue (812,210) (98.2) (1,570,458) (72.2) (3,026,759) (69.2)Gross profit 14,758 1.8 604,920 27.8 1,348,905 30.8 Operating income (expenses): Other operating income 9,799 1.2 15,890 0.7 189,645 4.3 Sales and marketing expenses (705,015) (85.3) (969,543) (44.6) (1,830,875) (41.8)General and administrativeexpenses (240,781) (29.1) (385,865) (17.7) (657,215) (15.0)Research and developmentexpenses (67,529) (8.2) (156,634) (7.2) (353,785) (8.1)Total operating expenses (1,003,526) (121.4) (1,496,152) (68.8) (2,652,230) (60.6)Operating loss (988,768) (119.6) (891,232) (41.0) (1,303,325) (29.8)Interest income 11,520 1.4 33,935 1.6 24,804 0.6 Interest expense (31,295) (3.8) (48,208) (2.2) (148,243) (3.4)Investment gain (loss), net 8,603 1.0 11,794 0.5 (17,820) (0.4)Changes in fair value ofconvertible notes 41,259 5.0 (472,877) (21.7) (87) (0.0)Foreign exchange gain (loss) 4,801 0.6 (2,031) (0.1) (38,567) (0.9)Loss before income tax and shareof results of equity investees (953,880) (115.3) (1,368,619) (62.9) (1,483,238) (33.9)Income tax expense (4,088) (0.5) (85,864) (3.9) (141,640) (3.2)Share of results of equityinvestees (3,066) (0.4) (3,239) (0.1) 721 0.0 Net loss (961,034) (116.2) (1,457,722) (67.0) (1,624,157) (37.1)Non-GAAP Financial Measure: Net loss excluding share-basedcompensation and changes infair value of the 2017 convertiblenotes(1) (944,172) (114.2) (867,776) (39.9) (1,333,824) (30.5)(1)To see how we define and calculate net loss excluding share-based compensation and changes in fair value of the 2017 convertible notes, a reconciliationbetween such item and net loss (the most directly comparable U.S. GAAP financial measure) and a discussion of the limitations of non-GAAP financialmeasures, see “—Non-GAAP Financial Measures” below.86Table of ContentsYear Ended December 31, 2020 Compared to Year Ended December 31, 2019RevenueOur total revenue increased by 101.1% from US$2,175.4 million in 2019 to US$4,375.7 million in 2020. This increase was primarily due to increases in revenuefrom our e-commerce business and digital entertainment business.●Digital Entertainment: Our digital entertainment revenue increased by 77.5% from US$1,136.0 million in 2019 to US$2,016.0 million in 2020. This increasewas primarily due to the increase in our active user base as well as the deepened paying user penetration, and in particular, the continued success of ourself-developed game Free Fire.●E-commerce and other services: Our e-commerce and other services revenue increased by 116.0% from US$822.7 million in 2019 to US$1,777.3 million in2020. This increase was primarily driven by the growth of our e-commerce marketplace, and positive developments in each of our marketplace revenuestreams – transaction-based fees, value-added services, and advertising. It is a result of our commitment to continuously enhance our service offeringsas we seek to create greater value for our platform users.●Sales of goods: Revenue increased by 168.7% from US$216.7 million in 2019 to US$582.4 million in 2020, primarily due to the increase in our productofferings.Cost of RevenueOur total cost of revenue increased by 92.7% from US$1,570.5 million in 2019 to US$3,026.8 million in 2020. This increase was in line with the overall growth ofour businesses:●Digital Entertainment: Cost of revenue increased by 61.1% from US$435.9 million in 2019 to US$702.3 million in 2020. The increase was largely in linewith revenue growth in our digital entertainment business. Improvement in gross profit margins was largely due to higher revenue contribution from ourself-developed game.●E-commerce and other services: Cost of revenue for our e-commerce and other services combined increased by 92.1% from US$907.5 million in 2019 toUS$1,743.8 million in 2020. The increase was primarily due to higher expenses associated with our logistics and other value-added services, and othercosts incurred in line with the growth of our e-commerce marketplace. Improvement in gross profit margins was mainly due to take-rate growth as wecontinue to roll out tools to better serve our users’ needs.●Cost of goods sold: Cost of goods sold increased by 155.8% from US$227.0 million in 2019 to US$580.7 million in 2020. The increase was largely in linewith the increase in our product offerings.Gross ProfitAs a result of the foregoing, our gross profit was US$604.9 million in 2019 and US$1,348.9 million in 2020. We had gross margins of 27.8% and 30.8% in 2019and 2020, respectively, and our digital entertainment business had gross margins of 61.6% and 65.2% in 2019 and 2020, respectively.Other Operating IncomeOur other operating income increased by 1,093.5% from US$15.9 million in 2019 to US$189.6 million in 2020. The increase was primarily due to the rebates frome-commerce related logistic services provided by third parties.Sales and Marketing ExpensesOur sales and marketing expenses increased by 88.8% from US$969.5 million in 2019 to US$1,830.9 million in 2020. The increase in sales and marketingexpenses in 2020 was mainly from our e-commerce and digital financial services businesses. The increase in marketing expenses for our e-commerce business wasprimarily attributable to the ramping up of marketing incentives and brand marketing efforts, as we continue our investments to fully capture the opportunities in ourmarkets. The increase in marketing expenses for our digital financial services business was mainly due to our efforts to drive adoption of our mobile wallet services.General and Administrative ExpensesOur general and administrative expenses increased by 70.3% from US$385.9 million in 2019 to US$657.2 million in 2020. This increase was primarily due tohigher staff compensation and benefit costs as well as provision for credit losses for our digital financial services business.87Table of ContentsResearch and Development ExpensesOur research and development expenses increased by 125.9% from US$156.6 million in 2019 to US$353.8 million in 2020, primarily due to an increase inresearch and development staff force.Other Income, Expenses, Gains and LossesOur net interest income, interest expense, investment gain (loss), fair value change for convertible notes and foreign exchange gain (loss) was a net loss ofUS$477.4 million in 2019 compared to a net loss of US$179.9 million in 2020. Our net non-operating loss in 2019 was primarily due to a fair value loss of US$472.9 millionarising from the fair value accounting treatment for the 2017 convertible notes while our net non-operating loss in 2020 was primarily due to interest expense on ourconvertible notes.Loss before Income Tax and Share of Results of Equity InvesteesAs a result of the foregoing, we had loss before income tax and share of results of equity investees of US$1,368.6 million in 2019, compared to loss beforeincome tax and share of results of equity investees of US$1,483.2 million in 2020.Income Tax ExpenseWe had an income tax expense of US$85.9 million in 2019 and US$141.6 million in 2020. This was primarily due to corporate income tax and withholding taxexpenses incurred by our digital entertainment segment.Share of Results of Equity InvesteesWe had share of loss of equity investees of US$3.2 million in 2019 and share of profit of equity investees of US$0.7 million in 2020.Net LossAs a result of the foregoing, we had net loss of US$1,457.7 million in 2019 and US$1,624.2 million in 2020.Net Loss Excluding Share-based Compensation and Changes in Fair Value of the 2017 Convertible NotesNet loss excluding share-based compensation and changes in fair value of the 2017 convertible notes was US$867.8 million in 2019 and US$1,333.8 million in2020.Year Ended December 31, 2019 Compared to Year Ended December 31, 2018RevenueOur total revenue increased by 163.1% from US$827.0 million in 2018 to US$2,175.4 million in 2019. This increase was primarily due to increases in revenuefrom our e-commerce business and digital entertainment business.●Digital Entertainment: Our digital entertainment revenue increased by 145.6% from US$462.5 million in 2018 to US$1,136.0 million in 2019. This increasewas primarily due to the increase of our active user base as well as the deepened paying user penetration as we continue to bring new and engagingcontent to our users and enhance the game and monetization features based on a deep understanding of local preferences and conditions as well as ourstrong efforts in esports and community-building.●E-commerce and other services: Our e-commerce and other services revenue increased by 204.6% from US$270.0 million in 2018 to US$822.7 million in2019. This increase was primarily driven by the growth of our e-commerce marketplace, and positive development in each of our marketplace revenuestreams – transaction-based fees, value-added services, and advertising. It is a result of our commitment to ever enhance our service offerings as weseek to create greater value for our platform users.●Sales of goods: Revenue increased by 129.4% from US$94.5 million in 2018 to US$216.7 million in 2019. This increase was primarily due to the increase inour product offerings.88Table of ContentsCost of RevenueOur total cost of revenue increased by 93.4% from US$812.2 million in 2018 to US$1,570.5 million in 2019. This increase was in line with the overall growth ofour businesses:●Digital Entertainment: Cost of revenue increased by 63.0% from US$267.4 million in 2018 to US$435.9 million in 2019. The increase was largely in linewith revenue growth in our digital entertainment business. Improvement in gross profit margins was largely due to higher revenue contribution from ourself-developed game.●E-commerce and other services: Cost of revenue for our e-commerce and other services combined increased by 103.4%, from US$446.3 million in 2018 toUS$907.5 million in 2019. The increase was primarily due to costs incurred in line with growth of our e-commerce marketplace, including, among othercosts, higher bank transaction fees driven by GMV growth, higher costs associated with value-added services and other ancillary services we providedto our e-commerce platform users, as well as higher staff compensation and benefit costs.●Cost of goods sold: Cost of goods sold increased by 130.3% from US$98.6 million in 2018 to US$227.0 million in 2019. The increase was largely in linewith the increase in our product offerings.Gross ProfitAs a result of the foregoing, our gross profit was US$14.8 million in 2018 and US$604.9 million in 2019. We had gross margins of 1.8% and 27.8% in 2018 and2019, respectively, and our digital entertainment business had gross margins of 42.2% and 61.6% in 2018 and 2019, respectively.Other Operating IncomeOur other operating income increased by 62.2% from US$9.8 million in 2018 to US$15.9 million in 2019. The increase was primarily due to an increase insponsorship from partners who participated in our events and tournaments.Sales and Marketing ExpensesOur sales and marketing expenses increased by 37.5% from US$705.0 million in 2018 to US$969.5 million in 2019. During 2019, sales and marketing expensesrelating to our digital entertainment and e-commerce businesses accounted for 11.2% and 79.0% of our total sales and marketing expenses, respectively. The increasein sales and marketing expenses in 2019 was mainly from the marketing efforts of our e-commerce business, which was aligned with our strategy to fully capture themarket growth opportunity and was primarily attributable to the ramping up of brand marketing as well as higher staff compensation and benefit costs.General and Administrative ExpensesOur general and administrative expenses increased by 60.3% from US$240.8 million in 2018 to US$385.9 million in 2019. This increase was primarily due to theexpansion of our staff force and the increase in office facilities and related expenses.Research and Development ExpensesOur research and development expenses increased by 132.0% from US$67.5 million in 2018 to US$156.6 million in 2019, primarily due to an increase in researchand development staff force.89Table of ContentsOther Income, Expenses, Gains and LossesOur net interest income, interest expense, investment gain, fair value change for convertible notes and foreign exchange gain (loss) was a net gain of US$34.9million in 2018, compared to a net loss of US$477.4 million in 2019. This was primarily due to a fair value gain of US$41.3 million in 2018 as compared to a fair value lossof US$472.9 million in 2019 arising from the fair value accounting treatment for the 2017 convertible notes.Loss before Income Tax and Share of Results of Equity InvesteesAs a result of the foregoing, we had loss before income tax and share of results of equity investees of US$953.9 million in 2018, compared to loss beforeincome tax and share of results of equity investees of US$1,368.6 million in 2019.Income Tax ExpenseWe had an income tax expense of US$4.1 million in 2018 and US$85.9 million in 2019 despite a group net loss position in 2018 and 2019, respectively. This wasprimarily due to withholding tax and corporate income tax expenses incurred by our digital entertainment segment, partially offset by deferred tax assets recognizedduring the year.Share of Results of Equity InvesteesWe had share of loss of equity investees of US$3.1 million in 2018 and US$3.2 million in 2019.Net LossAs a result of the foregoing, we had net loss of US$961.0 million in 2018 and US$1,457.7 million in 2019.Net Loss Excluding Share-based Compensation and Changes in Fair Value of the 2017 Convertible NotesNet loss excluding share-based compensation and changes in fair value of the 2017 convertible notes was US$944.2 million in 2018 and US$867.8 million in2019.Non-GAAP Financial MeasuresTo supplement our consolidated financial statements, which are prepared and presented in accordance with U.S. GAAP, we use net loss excluding share-based compensation and changes in fair value of the 2017 convertible notes, a non-GAAP financial measure, as described below, to understand and evaluate our coreoperating performance. This non-GAAP financial measure, which may differ from similarly titled measures used by other companies, is presented to enhance investors’overall understanding of our financial performance and should not be considered a substitute for, or superior to, the financial information prepared and presented inaccordance with U.S. GAAP.We believe that this non-GAAP financial measure provides useful information to investors and others in understanding and evaluating our operating results.This non-GAAP financial measure eliminates the impact of items that we do not consider indicative of the performance of our business. While we believe that thisnon-GAAP financial measure is useful in evaluating our business, this information should be considered as supplemental in nature and is not meant as a substitute forthe related financial information prepared in accordance with U.S. GAAP.The use of net loss excluding share-based compensation and changes in fair value of the 2017 convertible notes has material limitations as an analytical tool,as it does not include all items that impact our net loss or income for the period and share-based compensation and changes in fair value of convertible notes aresignificant expenses. In addition, because this non-GAAP financial measure may not be calculated in the same manner by all companies, it may not be comparable toother similar titled measures used by other companies.90Table of ContentsThe table below presents reconciliation of net loss excluding share-based compensation and changes in fair value of the 2017 convertible notes to net loss,the most directly comparable U.S. GAAP financial measure, for the periods indicated. For the Year Ended December 31, 2018 2019 2020 (US$ thousands) Net loss (961,034) (1,457,722) (1,624,157)Add: Share-based compensation 58,121 117,069 290,246 Add: Changes in fair value of the 2017 convertible notes (41,259) 472,877 87 Net loss excluding share-based compensation and changes in fair value of the 2017 convertiblenotes (944,172) (867,776) (1,333,824)Segment ReportingWe have three reportable segments, namely, digital entertainment, e-commerce and digital financial services. The chief operating decision maker reviews theperformance of each segment based on revenue and certain key operating metrics of the operations and uses these results for the purposes of allocating resources toand evaluating the financial performance of each segment.Information about segments during the years ended December 31, 2018, 2019 and 2020 presented were as follows: For the Year ended December 31, 2020 DigitalEntertainment E-commerce Digital FinancialServices OtherServices(1) Unallocatedexpenses(2) Consolidated (US$ thousands) Revenue 2,015,972 2,167,149 60,785 131,758 – 4,375,664Operating income(loss) 1,016,793 (1,442,593) (520,075) (49,006) (308,444) (1,303,325)Non-operating loss,net (179,913)Income tax expense (141,640)Share of results ofequity investees 721Net loss (1,624,157)91Table of Contents For the Year ended December 31, 2019 DigitalEntertainment E-commerce Digital FinancialServices OtherServices(1) Unallocatedexpenses(2) Consolidated (US$ thousands) Revenue 1,136,017 834,295 9,223 195,843 – 2,175,378 Operating income(loss) 529,524 (1,131,771) (116,309) (39,864) (132,812) (891,232)Non-operating loss,net (477,387)Income tax expense (85,864)Share of results ofequity investees (3,239)Net loss (1,457,722) For the Year ended December 31, 2018 DigitalEntertainment E-commerce Digital FinancialServices OtherServices(1) Unallocatedexpenses(2) Consolidated (US$ thousands) Revenue 462,464 269,578 11,458 83,468 – 826,968 Operating income(loss) 69,449 (893,489) (34,056) (62,548) (68,124) (988,768)Non-operatingincome, net 34,888 Income tax expense (4,088)Share of results ofequity investees (3,066)Net loss (961,034)(1)A combination of multiple business activities that does not meet the quantitative thresholds to qualify as reportable segments are grouped together as“Other Services”.(2)Unallocated expenses are mainly related to share-based compensation and general and corporate administrative costs such as professional fees and othermiscellaneous items that are not allocated to segments. These expenses are excluded from segment results as they are not reviewed by the chief operatingdecision maker as part of segment performance.TaxationCayman IslandsWe are incorporated in the Cayman Islands and our primary business operations are conducted through our subsidiaries, branch offices and consolidatedaffiliated entities. Under the current laws of the Cayman Islands, we are not subject to tax on income or capital gains.SingaporeOur subsidiaries incorporated in Singapore are subject to the Singapore corporate tax of 17% in 2018, 2019 and 2020. Garena Online Private Limited wasgranted an additional five-year development and expansion incentive by the Singapore Economic Development Board, or the EDB, commencing from January 1, 2017,which grants a concessionary tax rate of 10% on qualifying income, subject to certain terms and conditions imposed by the EDB.OthersSubsidiaries incorporated in other jurisdictions are subject to the respective statutory corporate income tax rates of the jurisdictions where they are resident.Domestic statutory corporate income tax rate in Indonesia was reduced from 25% to 22% with effect from the financial year 2020 and will be further reduced to20% for the financial year 2022 and onwards.In March 2021, the Philippines reduced its corporate income tax rate from 30% to 25%, effective retroactively from July 1, 2020.92Table of ContentsB.Liquidity and Capital ResourcesCash Flows and Working CapitalOur principal sources of liquidity have been cash generated from operating activities and proceeds from our follow-on offerings and convertible notesofferings.As of December 31, 2018, 2019 and 2020, we had US$1,259.3 million, US$3,570.6 million and US$7,053.4 million, respectively, in cash, cash equivalents andrestricted cash. Cash and cash equivalents consist of cash on hand and demand deposits and funds placed with banks or other financial institutions which areunrestricted as to withdrawal and use and have original maturities of three months or less. Restricted cash comprises deposits pledged with banks as security inrelation to the utilization of certain bank services, monies received and held in escrow in connection to our e-commerce business and advances received fromcustomers in connection with our digital financial services business. Our cash, cash equivalents and restricted cash are primarily denominated in U.S. dollars as wellas in local currencies of the markets where we operate. We intend to finance our future working capital requirements and capital expenditures from cash generated fromoperating activities and funds raised from financing activities. We believe that our current available cash and cash equivalents will be sufficient to meet our workingcapital requirements and capital expenditures in the ordinary course of business for the next twelve months.Our working capital position (which is the difference between current assets and current liabilities) was US$524.2 million, US$2,047.8 million and US$4,302.9million as of December 31, 2018, 2019 and 2020, respectively, mainly due to increases in cash from our financing activities, including the net proceeds from the issuanceof convertible notes in 2018, 2019 and 2020, and the follow-on offerings in 2019 and 2020.The following table sets forth a summary of our cash flows for the periods indicated: For the Year Ended December 31, 2018 2019 2020 (US$ thousands) Net cash (used in) generated from operating activities (495,220) 69,865 555,868 Net cash used in investing activities (224,528) (363,219) (886,912)Net cash generated from financing activities 546,628 2,579,595 3,733,132 Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash (12,546) 25,025 80,727 Net (decrease) increase in cash, cash equivalents and restricted cash (185,666) 2,311,266 3,482,815 Cash, cash equivalents and restricted cash at beginning of year 1,444,978 1,259,312 3,570,578 Cash, cash equivalents and restricted cash at the end of the year 1,259,312 3,570,578 7,053,393 Operating ActivitiesNet cash generated from operating activities increased by US$486.0 million to US$555.9 million for the year ended December 31, 2020, compared to US$69.9million for the year ended December 31, 2019. The principal driver of our operating cash flows is cash received from sales of our products and services, includingproceeds from our sales of in-game virtual items in our digital entertainment business, fees collected from customers in our e-commerce business, interest receivedfrom our loan business, commissions from merchants in our digital financial services business, and proceeds from direct sales of products. The increase in operatingcash flows was primarily driven by an increase in the change in deferred revenue of US$525.2 million, mainly due to cash generated from sales of in-game virtual itemsin our digital entertainment business, which was largely attributable to our self-developed game Free Fire, and an increase in the change in accrued expenses and otherpayables by US$589.4 million, which was primarily attributable to higher escrow payables and accrued cost of revenue and sales and marketing expenses. The increasein operating cash flows was partially offset by an increase in net loss (after adjusting for non-cash items) by US$258.1 million, an increase in the change in prepaidexpenses and other assets, which was primarily attributable to higher receivables due from our logistics providers and payment collection channels in our e-commercebusiness, and higher deferred channel costs in our digital entertainment business, and an increase in the change in accounts receivables, which was primarilyattributable to higher receivables from our game distribution channels.93Table of ContentsNet cash generated from operating activities was US$69.9 million for the year ended December 31, 2019, compared to net cash used in operating activities ofUS$495.2 million for the year ended December 31, 2018. The principal driver of our operating cash flows is cash received from sales of our products and services,including proceeds from our sales of in-game virtual items in our digital entertainment business, fees collected from customers in our e-commerce business,commissions from merchants in our digital financial services business, and proceeds from direct sales of products. Operating cash flows turned from negative in 2018to positive in 2019 principally due to changes in our working capital, primarily driven by an increase in the change in deferred revenue of US$433.0 million, mainly dueto cash generated from sales of in-game virtual items in our digital entertainment business, which was largely attributable to our self-developed game Free Fire, and adecrease in the change in inventories of US$40.2 million due to inventory management efforts. Operating cash flows were also positively affected by a decrease in netloss (after adjusting for non-cash items) by US$155.8 million. The increase in operating cash flows was partially offset by an increase in the change in prepaidexpenses and other assets, which was primarily attributable to higher receivables due from payment collection channels in our e-commerce business and higherdeferred channel costs in our digital entertainment business, and an increase in the change in accounts receivables, which was primarily attributable to higherreceivables from our game distribution channels.Investing ActivitiesNet cash used in investing activities amounted to US$886.9 million in 2020. This was primarily attributable to the purchase of property and equipment ofUS$336.3 million, purchase of investments of US$219.5 million and an increase in loans receivable of US$255.7 million.Net cash used in investing activities amounted to US$363.2 million in 2019. This was primarily attributable to the purchase of property and equipment ofUS$239.8 million and purchase of investments of US$118.5 million.Net cash used in investing activities amounted to US$224.5 million in 2018. This was primarily attributable to the purchase of property and equipment ofUS$177.3 million and purchase of investments of US$69.6 million. These were partially offset by proceeds from the disposal of investments of US$22.7 million.Financing ActivitiesNet cash generated from financing activities amounted to US$3,733.1 million in 2020, primarily attributable to net proceeds from issuance of convertible notesof US$1,141.4 million and net proceeds from issuance of ordinary shares of US$2,970.2 million.Net cash generated from financing activities amounted to US$2,579.6 million in 2019, primarily attributable to net proceeds from issuance of convertible notesof US$1,138.5 million and net proceeds from issuance of ordinary shares of US$1,538.8 million.Net cash generated from financing activities amounted to US$546.6 million in 2018, primarily attributable to net proceeds from issuance of convertible notesof US$564.9 million.Convertible NotesIn June 2018, we completed an offering of 2.25% convertible senior notes in an aggregate principal amount of US$575 million, or the 2023 convertible notes.These 2023 convertible notes were offered to qualified institutional buyers pursuant to Rule 144A under the Securities Act, and certain non-U.S. persons incompliance with Regulation S under the Securities Act. The notes will mature in July 2023. Note holders have the right, at their option, to convert the outstandingprincipal amount in whole or in part in integral multiples of US$1,000 principal amount (i) upon satisfaction of one or more of the conversion conditions as defined inthe indenture prior to the close of business on the business day immediately preceding January 1, 2023; or (ii) anytime on or after January 1, 2023 until the close ofbusiness on the second scheduled trading day immediately preceding the maturity date. Unless otherwise converted or redeemed, we will repay the full outstandingand unpaid principal amounts in full on the maturity date. The notes may be converted, in whole or in part, into our ADSs at an initial conversion rate of 50.5165 ADSsper US$1,000 principal amount (equivalent to approximately US$19.80 per ADS), subject to certain anti-dilution and make-whole fundamental change adjustments.Upon conversion, we have the right, at our option, to pay or deliver, either cash, ADSs, or a combination of cash and ADSs to converting holders. Between May andOctober 2020, we entered into separate privately negotiated agreements with certain holders of our 2023 convertible notes to exchange approximately US$378.5 millionprincipal amount of our then outstanding 2023 convertible notes for a combination of approximately US$50.0 million (plus accrued and unpaid interest to the exchangedate, if any) in cash and approximately 18.5 million ADSs as consideration. As of March 5, 2021, holders of an aggregate of US$153.6 million principal amount of our2023 convertible notes have elected to convert, and after taking into account the 2023 convertible notes exchanged, approximately US$42.9 million principal amount ofour 2023 convertible notes remained outstanding.94Table of ContentsIn November 2019, we completed an offering of 1.00% convertible senior notes in an aggregate principal amount of US$1,150 million, or the 2024 convertiblenotes. These 2024 convertible notes were offered to qualified institutional buyers pursuant to Rule 144A under the Securities Act, and certain non-U.S. persons incompliance with Regulation S under the Securities Act. The notes will mature in December 2024. Note holders have the right, at their option, to convert theoutstanding principal amount in whole or in part in integral multiples of US$1,000 principal amount (i) upon satisfaction of one or more of the conversion conditions asdefined in the indenture prior to the close of business on the business day immediately preceding June 1, 2024; or (ii) anytime on or after June 1, 2024 until the close ofbusiness on the second scheduled trading day immediately preceding the maturity date. On or after December 2, 2022, we may redeem for cash all or any part of thenotes, if certain conditions are met, at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest. We mayalso redeem for cash all but not part of the notes at any time if less than US$75 million aggregate principal amount of notes remains outstanding at such time. Unlessotherwise converted or redeemed, we will repay the full outstanding and unpaid principal amounts in full on the maturity date. The notes may be converted, in wholeor in part, into our ADSs at an initial conversion rate of 19.9475 ADSs per US$1,000 principal amount (equivalent to approximately US$50.13 per ADS), subject tocertain anti-dilution and make-whole fundamental change adjustments. Upon conversion, we have the right, at our option, to pay or deliver, either cash, ADSs, or acombination of cash and ADSs to converting holders. As of March 5, 2021, holders of an aggregate of US$105.7 million principal amount of our 2024 convertible noteshave elected to convert, and approximately US$1,044.3 million principal amount of our 2024 convertible notes remained outstanding.In connection with the pricing of the 2024 convertible notes, we have entered into capped call transactions with certain financial institutions. These cappedcall transactions are generally expected to reduce the potential dilution with respect to our ADSs and Class A ordinary shares upon conversion of the 2024 convertiblenotes and/or offset any cash payments we are required to make in excess of the principal amount of converted notes, as the case may be, upon any conversion of thenotes, with such reduction of potential dilution or offset of cash payments, as the case may be, subject to a cap based on the cap price of the capped call transactions.The cap price of the capped call transactions will initially be US$70.36 per ADS, and is subject to certain adjustments under the terms of the capped call transactions.In May 2020, we completed an offering of 2.375% convertible senior notes in an aggregate principal amount of US$1,150 million, or the 2025 convertiblenotes. These 2025 convertible notes were offered to qualified institutional buyers pursuant to Rule 144A under the Securities Act, and certain non-U.S. persons incompliance with Regulation S under the Securities Act. The notes will mature in December 2025. Note holders have the right, at their option, to convert theoutstanding principal amount in whole or in part in integral multiples of US$1,000 principal amount (i) upon satisfaction of one or more of the conversion conditions asdefined in the indenture prior to the close of business on the business day immediately preceding September 1, 2025; or (ii) anytime on or after September 1, 2025 untilthe close of business on the second scheduled trading day immediately preceding the maturity date. On or after May 19, 2023, we may redeem for cash all or any partof the notes, if certain conditions are met, at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest.We may also redeem for cash all but not part of the notes at any time if less than US$100 million aggregate principal amount of notes remains outstanding at such time.Unless otherwise converted or redeemed, we will repay the full outstanding and unpaid principal amounts in full on the maturity date. The notes may be converted, inwhole or in part, into our ADSs at an initial conversion rate of 11.0549 ADSs per US$1,000 principal amount (equivalent to approximately US$90.46 per ADS), subjectto certain anti-dilution and make-whole fundamental change adjustments. Upon conversion, we have the right, at our option, to pay or deliver, either cash, ADSs, or acombination of cash and ADSs to converting holders. As of March 5, 2021, holders of an aggregate of US$0.5 million principal amount of our 2025 convertible noteshave elected to convert, and US$1,149.5 million principal amount of our 2025 convertible notes remained outstanding.95Table of ContentsIn connection with the pricing of the 2025 convertible notes, we have entered into capped call transactions with certain financial institutions. These cappedcall transactions are generally expected to reduce the potential dilution with respect to our ADSs and Class A ordinary shares upon conversion of the 2025 convertiblenotes and/or offset any cash payments we are required to make in excess of the principal amount of converted notes, as the case may be, upon any conversion of thenotes, with such reduction of potential dilution or offset of cash payments, as the case may be, subject to a cap based on the cap price of the capped call transactions.The cap price of the capped call transactions will initially be US$136.54 per ADS, and is subject to certain adjustments under the terms of the capped call transactions.For the years ended December 31, 2018, 2019 and 2020, we recognized total interest expense for coupon interest of US$6.9 million, US$14.3 million andUS$35.5 million and amortization of discount on the liability component of US$14.2 million, US$33.3 million and US$88.2 million, respectively, on our 2023, 2024 and2025 convertible notes.Due to the exchanges and conversions completed during the year ended December 31, 2020, we recognized a loss on debt extinguishment of US$24.4 millionin our consolidated statements of operations.Capital ExpendituresOur capital expenditures amounted to US$178.4 million, US$247.1 million and US$357.1 million in 2018, 2019 and 2020, respectively. Capital expenditure wasincurred for purchases of property and equipment and intangible assets, such as game licenses and other intellectual property rights. The increase in our capitalexpenditure in 2020 was mainly attributable to the additional investment in servers and computer hardware due to the growth of our e-commerce business and digitalentertainment business, as well as the leasehold improvements due to the expansion of our business. We will continue to make capital expenditures to meet theexpected growth of our business and expect that cash generated from our operating activities and financing activities will meet our capital expenditure needs in theforeseeable future.Holding Company StructureSea Limited is a holding company that does not have substantive operations. We conduct our operations primarily through our subsidiaries, branch officesand our consolidated affiliated entities. As a result, our ability to pay dividends depends upon, among others, dividends paid by our subsidiaries. If our subsidiariesor any newly formed subsidiaries incur debt on their own behalf in the future, the instruments governing their debt may restrict their ability to pay dividends to us.In addition, as determined in accordance with local regulations, our subsidiaries and VIEs in certain of our markets may be restricted from paying usdividends offshore or from transferring a portion of their assets to us, either in the form of dividends, loans or advances, unless certain requirements are met, andregulatory approvals are obtained. See “Item 3. Key Information—D. Risk Factors—Markets Related Risks—The ability of our subsidiaries to distribute dividends tous may be subject to restrictions under the laws of their respective jurisdictions.” Even though we currently do not require any such dividends, loans or advancesfrom our entities for working capital and other funding purposes, we may in the future require additional cash resources from them due to changes in businessconditions, to fund future acquisitions and development, or merely to declare and pay dividends or distributions to our shareholders.Certain of the markets in which we have significant subsidiaries or principal operating entities, including Indonesia, Thailand and Taiwan, require thosesubsidiaries to establish and fund statutory reserves. Indonesian laws require a limited liability company to reserve a certain amount from its net profit each year as areserve fund until such fund amounts to at least 20% of its issued and paid-up capital. Thailand regulations require a private limited liability company to allocate atleast 5% of its retained earnings into a legal reserve fund at the time the dividend is paid until and unless the legal reserve fund reaches 10% of the company’sregistered capital. The legal reserve is not available for dividend distribution. Taiwan laws require a limited liability company to set aside 10% of annual net income(less prior years’ losses, if any, and applicable income taxes) as legal reserve until the accumulated legal reserve equals the paid-in capital of such company beforesuch company can distribute any dividend.96Table of ContentsCritical Accounting PoliciesWe prepare our financial statements in conformity with U.S. GAAP, which requires us to make estimates and assumptions that affect our reporting of, amongother things, assets and liabilities, contingent assets and liabilities and revenue and expenses. We regularly evaluate these estimates and assumptions based on themost recently available information, our own historical experiences and other factors that we believe to be relevant under the circumstances. Since our financialreporting process inherently relies on the use of estimates and assumptions, our actual results could differ from what we expect. This is especially true with someaccounting policies that require higher degrees of judgment than others in their application. We consider the policies discussed below to be critical to anunderstanding of our audited consolidated financial statements because they involve the greatest reliance on our management’s judgment.Revenue RecognitionWe recognize revenue from sales of our goods and services upon transfer of control of promised goods or services to customers in an amount that reflectsthe consideration to which we expect to be entitled to for those goods or services. Revenue is measured based on the amount of consideration that we expect toreceive reduced by discounts, incentives and rebates. Revenue also excludes any amounts collected on behalf of third parties, including sales taxes and indirect taxes.We evaluate revenue from services and sales of goods to determine if we control such services and goods to be the principal (i.e., report revenues on a grossbasis) or agent (i.e., report revenues on a net basis). The key indicators that we evaluate in determining gross versus net treatment include, but are not limited to, (i)which party is primarily responsible for fulfilling the promise to provide the specified good or service; (ii) which party bears inventory risks before the specified goodor service has been transferred to a customer; and (iii) which party has discretion in establishing the price for the specified good or service.Digital EntertainmentWe distribute online games, including self-developed games and licensed online games from game developers, through our PC-based and mobile-basedapplications as well as certain app stores. We offer many ways for users to purchase in-game virtual items, including the SeaMoney and Shopee platform, other onlinepayment gateways, bank transfers, credit cards, mobile phone billing and prepaid cards, including our own prepaid cards, which are sold through agents. As wecontrol the service of providing games to the users and have a direct contractual arrangement with our paying users and have the right to determine the price to bepaid by such users, the gross proceeds collected from these channels represent revenue to be recognized, while the amounts retained by these channels based on apredetermined percentage represent our cost of revenue to be recognized.Proceeds from these sales are initially recognized as “Advances from customers” and are subsequently reclassified to “Deferred revenue” when the usersmake in-game purchases of the virtual currencies or virtual items within the games that we operate, and such in-game purchases are no longer refundable.For the licensed games, we record revenue inclusive of the royalties payable to game developers, which are based on revenue-sharing ratios, as we controlthe service of providing the games to the users and are primarily responsible to the customers and have latitude in establishing the pricing of the virtual items.Revenue is recognized over the performance obligation period. For purposes of determining the performance obligation period, we have determined that animplied obligation exists to the paying users to continue providing access to the virtual items purchased within the online games over an estimated delivery obligationperiod. Such delivery obligation period is determined in accordance with the estimated average lifespan of the virtual items sold or estimated average lifespan of thepaying users of the said games or similar games.•Item-based revenue model. Virtual items have different lifespan patterns: time-based, consumable and durable. Time-based virtual items are items with astated expiration time, for which revenue is recognized ratably over the period based on the time unit of the virtual items. Consumable virtual items areitems that can be consumed by a specific user action and have limitations on repeated use. Revenue attributable to consumable virtual items isrecognized upon consumption. Durable virtual items are items that provide the user with continuing benefits over an extended period of time. Revenueattributable to durable virtual items is recognized ratably over their average lifespan, which is estimated based on users’ historical usage patterns andplaying behaviors for the virtual items. We assess the estimated average lifespan of durable virtual items on a quarterly basis.97Table of Contents•User-based revenue model. We track paying users’ activeness within each game where the user-based revenue model is used to estimate paying users’average lifespan. Paying users are defined as inactive in a game when they have reached a period of inactivity for which it is reasonable to believe thatthese users will not return to that game. We determine the inactive rate of these paying users and revise the estimated paying users’ average lifespan ona quarterly basis.We believe the current revenue models provide reasonable depiction of the service transferred patterns to the customers and they represent the bestestimation of the time period the customers are likely to play the respective games. Determining the estimated service period is subjective and requires management’sjudgment. Future users’ usage patterns and playing behavior may change and differ from the historical usage patterns and playing behavior, and therefore theestimated service period may change accordingly in the future.Digital Financial ServicesWe earn interest and fees from loans granted to commercial and consumer customers. Interest and fees earned are recognized over the period of the loanbased on the effective interest method.We also earn commissions from merchants when transactions are completed and settled through our digital financial services platform. These commissionsare generally determined as a percentage based on the value of the merchandise being sold by the merchants. Commission is recognized in the consolidatedstatements of operations at the time when the underlying transaction is completed.E-commerceOur e-commerce business charges sellers on its marketplace a fixed rate commission fee based on gross merchandise values in selected markets. Fees arecharged when the transactions are completed and settled. Such commission fees charged are recognized on a net basis.Our e-commerce business also provides logistic services to end customers. Revenue from logistic services is recognized over time as the customersimultaneously receives and consumes the benefits provided through our performance of the services.Our e-commerce business operates a customer loyalty program, where end users who purchase merchandise and participate in activities through Shopee’splatform are given Shopee Coins which will entitle them to offset future purchases, participate in activities and redeem vouchers through Shopee’s platform. A portionof the revenue attributable to Shopee Coins is deferred until they are redeemed, used or expired. In addition, we provide certain sales incentives, such as coupons,discounts and logistics incentives, to the end users as part of our plan to expand our market share. Sales incentives given to end users as a result of a concurrent saletransacted on Shopee’s platform are recognized as reductions of the corresponding revenue. To the extent the sales incentives exceed revenue, the excess will berecorded in sales and marketing expenses.We also charge our sellers advertising fees through a paid ads service offered on our Shopee platform. The paid ads service allows sellers to bid forkeywords that match their product or service listing appearing in search or browser results on our Shopee marketplace. Their product or service listing will showhigher in search rankings when users search for keywords they have bid on. Sellers prepay for paid ads services and the advertising income is recognized based onthe number of clicks on the product or service listings during the service period.Sales of GoodsWe also sell merchandise products through our Shopee platform. We recognize revenue from sale of goods at the point in time that the customer obtainscontrol of the goods, which generally occurs upon delivery to the customer.98Table of ContentsRendering of ServicesWe also recognize revenue from other services when the services are rendered.Consolidation of VIEsOur consolidated financial statements include the financial statements of Sea Limited, our subsidiaries and our VIEs for which we or one of our subsidiaries isthe primary beneficiary. All significant intercompany transactions and balances between us, our subsidiaries and our VIEs are eliminated upon consolidation.We operate in certain markets that have restrictions on foreign ownership of local companies. To comply with these foreign ownership restrictions, weconduct our businesses in certain markets through VIEs using contractual arrangements, including:●loan agreements;●exclusive option agreements;●exclusive business cooperation agreements;●financial support confirmation letters;●powers of attorney; and●equity interest pledge agreements.Despite the lack of technical majority ownership, there exists a parent-subsidiary relationship between us and these VIEs, through the irrevocable power of attorney,whereby the shareholders of each VIE effectively assigned all of the voting rights underlying their equity interest in the VIEs to us. Furthermore, pursuant to the loanagreements, exclusive option agreement and equity interest pledge agreement, we obtained effective control over the VIEs through the ability to exercise all of therights of the shareholders of the VIEs and therefore the power to govern the activities that most significantly impact the economic performance of the VIEs. Inaddition, through the financial support confirmation letter and the exclusive business cooperation agreement, we demonstrate our ability and intention to continue theability to absorb substantially all the expected losses and receive substantially all of the economic benefits of the VIEs. Thus, we are the primary beneficiary of theseVIEs and have consolidated their financial results in our consolidated financial statements in accordance with U.S. GAAP.InvestmentsOur investments consist of available-for-sale investments, held-to-maturity investments, equity security investments and equity method investments. Inaccordance with ASC 320, Investments – Debt Securities, we classify the investments in debt securities as “held-to-maturity,” “trading” or “available-for-sale,” whoseclassification determines the respective accounting methods stipulated by ASC 320. Dividend and interest income for all categories of investments in securities areincluded in earnings. Any realized gains or losses, if any, on the sale of the investments are determined on a specific identification method, and such gains and lossesare reflected in earnings during the period in which gains or losses are realized. The securities that we have positive intent and ability to hold to maturity are classifiedas held-to-maturity securities and stated at amortized cost. The securities that are bought and held principally for the purpose of selling them in the near term areclassified as trading securities and measured at fair value. Unrealized holding gains and losses for trading securities are included in earnings. Investments notclassified as trading or as held-to-maturity are classified as available-for-sale securities. Available-for-sale investment is reported at fair value, with unrealized gainsand losses recorded in accumulated other comprehensive income. Realized gains or losses are included in earnings during the period in which the gain or loss isrealized.We compare the present value of cash flows expected to be collected from the available-for-sale investment with the amortized cost basis of the security todetermine if a credit loss exists. If the present value of cash flows expected to be collected is less than the amortized cost basis of the investment, a credit loss existsand an allowance for credit losses are recorded for the credit loss, limited by the amount that the fair value is less than amortized cost basis. An available-for-saleinvestment is written off in the period the investment is deemed uncollectible.99Table of ContentsIn accordance with ASC 321, Investments – Equity Securities, for investments in an investee over which we do not have significant influence, we carry theinvestment at fair value with unrealized gains and losses included in earnings. We have elected to measure its equity security investments without readilydeterminable fair value at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or asimilar investment of the same investee. We regularly evaluate the impairment of our equity security investments based on the performance and financial position ofthe investee as well as other evidence of estimated market values. Such evaluation includes, but is not limited to, reviewing the investee’s cash position, recentfinancing, projected and historical financial performance, cash flow forecasts and current and future financing needs. An impairment loss is recognized in theconsolidated statements of operations equal to the excess of the investment’s cost over its fair value at the balance sheet date of the reporting period for which theassessment is made. The fair value would then become the new cost basis of investment.Investments in equity investees represent investments in (a) entities in which we can exercise significant influence but does not own a majority equityinterest or control and (b) limited partnership in which we hold a five percent or greater interest. Such investments are accounted for using the equity method ofaccounting in accordance with ASC 323-10, Investments – Equity Method and Joint Ventures: Overall. Under the equity method, we initially record our investment atcost and prospectively recognizes its proportionate share of each equity investee’s net profit or loss into our consolidated statements of operations. The differencebetween the cost of the equity investee and the amount of the underlying equity in the net assets of the equity investee is recognized as equity method goodwillincluded in equity method investment on our consolidated balance sheets. We evaluate our equity method investments for impairment under ASC 323-10. Animpairment loss on the equity method investments is recognized in our consolidated statements of operations when the decline in value is determined to be other-than-temporary.We discontinue applying equity method if an investment (and additional financial supports to the investee, if any) has been reduced to zero. When we haveother investments in the investee that have liquidation preferences more senior than the ordinary shares and the equity-method investment in the ordinary shares isreduced to zero, we continue to report its share of equity losses in our consolidated statement of operations, to the extent of and as an adjustment to the adjustedbasis of the other investments in the investee. The order in which the equity losses are applied to the other investments follows the seniority of the other investmentsin the same investee.Share-based CompensationWe adopted a share incentive plan in September 2009, last amended in July 2019, or the 2009 Plan. Under the 2009 Plan, we may grant options, restrictedshares, restricted share units or share appreciation rights to our officers, employees, directors and other eligible persons, collectively known as eligible persons. Themaximum number of ordinary shares which may be issued pursuant to all awards under the 2009 Plan will increase on January 1 of each of 2019, 2020, 2021 and 2022 by5% of the total number of all classes of our ordinary shares outstanding on that day immediately before such annual increase pursuant to the 2009 Plan. As of January1, 2021, the maximum number of shares which may be issued pursuant to all awards under the Plan is 148,888,743 Class A ordinary shares.Share options, restricted share awards, restricted share units and share appreciation rights granted to employees are accounted for based on the fair valueand recognized as compensation expense over the requisite service period (which is generally the vesting period) in the consolidated statements of operations. Wehave elected to recognize compensation expense using the straight-line method for equity-classified share-based awards granted with service conditions that have agraded vesting schedule. Forfeitures are accounted for as they occur.The following table summarizes our employee share option activity as of the dates indicated: As of December 31, 2018 2019 2020 Number of options granted 26,500,000 15,327,884 5,809,024 Weighted average exercise price (US$) 15.00 15.00 18.59 Weighted average grant date fair value (US$) 3.02 12.05 37.86 100Table of ContentsWe calculated the estimated fair value of the options on the respective grant dates using the Black-Scholes option pricing model with the followingassumptions: Granted in 2018 2019 2020 Risk-free interest rates 2.75% - 2.92% 2.34% – 2.68% 0.39% – 1.66% Expected term 5 – 7 years 5.5 – 8.5 years 5.5 – 7.5 years Expected volatility 33.3% - 35.2% 33.0% - 35.0% 32.4% - 33.7% Expected dividend yield — — — The Black-Scholes option pricing model was applied in determining the estimated fair value of the share options granted to eligible persons. The modelrequires the input of highly subjective assumptions including the estimated expected stock price volatility and the expected term of the option for which employeesare likely to exercise their share options. The risk-free rate for periods within the contractual life of the option is based on the U.S. dollar swap curve at the time ofgrant. We have used the simplified method to determine the expected term due to insufficient historical exercise data to provide a reasonable basis to estimateexpected term. For expected volatilities, we have made reference to the historical price volatilities of ordinary shares of several comparable companies in the sameindustry as us. Because we have never declared or paid any cash dividends on our ordinary shares and do not presently plan to pay cash dividends in the foreseeablefuture, we used an expected dividend yield of zero. Changes in these assumptions could significantly affect the estimated fair value of our share options and hencethe amount of compensation expense that we recognize in our consolidated financial statements. Our management is ultimately responsible for the determination ofthe estimated fair value of its ordinary shares. The per option weighted-average grant-date fair value of share options granted in 2018, 2019 and 2020 was US$3.02,US$12.05 and US$37.86, respectively.The following table summarizes our restricted share awards and restricted share units activity as of the dates indicated: As of December 31, 2018 2019 2020 Number of restricted share awards and restricted share units granted 4,983,162 6,249,313 5,034,735 Weighted average grant date fair value (US$) 12.30 20.50 72.37 Share-based compensation costs for restricted share awards and restricted share units are measured based on the fair value of our ordinary shares on thedate of grant.In determining the fair value of the non-vested ordinary shares and restricted share units and restricted share awards granted, the closing market price of theunderlying shares on the last trading date prior to the grant dates is applied.Income TaxesWe account for income taxes using the liability method. Under this method, deferred tax assets and liabilities are determined based on the difference betweenthe financial reporting and tax bases of assets and liabilities using enacted tax rates expected to be in effect during the period in which the basis differences areexpected to reverse. We record a valuation allowance against deferred tax assets if, based on the weight of available evidence, it is more-likely-than-not that someportion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes theenactment date. We apply ASC 740, Accounting for Income Taxes, to account for uncertainty in income taxes. ASC 740 prescribes a recognition threshold that a taxposition is required to meet before being recognized in the financial statements.We have elected to classify interest and penalties related to unrecognized tax benefits, if and when required, as part of “income tax” in the consolidatedstatements of operations.101Table of ContentsRecent Accounting PronouncementsIn August 2020, the FASB issued ASU No. 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging -Contracts in Entity’s Own Equity (Subtopic 815-40) – Accounting For Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), whichsimplifies the accounting and disclosures for convertible instruments and contracts in an entity’s own equity. We will adopt ASU 2020-06 in its first quarter of 2022.We are currently evaluating the impact ASU 2020-06 will have on our consolidated financial statements.C.Research and Development, Patents and Licenses, etc.Research and DevelopmentCosts incurred in connection with the planning and implementation phases of the development of software for internal use are expensed. Costs incurred inthe development phase are capitalized and amortized over the estimated useful life.Costs incurred internally in researching and developing a software product are charged to expense as research and development costs prior to technologicalfeasibility being established for the product. Once technological feasibility is established, all software costs are capitalized until the product is available for generalrelease to customers. Technological feasibility is established upon completion of all the activities that are necessary to substantiate that the software product can beproduced in accordance with its design specifications, including functions, features, and technical performance requirements. None of such costs were capitalized forany of periods presented.Intellectual PropertySee “Item 4. Information on the Company—B. Business Overview—Intellectual Property.”D.Trend InformationOther than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events for the year endedDecember 31, 2020 that are reasonably likely to have a material adverse effect on our net revenues, income, profitability, liquidity or capital resources, or that wouldcause reported financial information not necessarily to be indicative of future operating results or financial conditions.E.Off-balance Sheet ArrangementsAs of December 31, 2020, we did not have any off-balance sheet arrangements that had or were reasonably likely to have a current or future effect on ourfinancial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material toinvestors.F.Tabular Disclosure of Contractual ObligationsContractual ObligationsThe following table sets forth our contractual obligations as of December 31, 2020. Payment Due by Period Total Less Than1 Year 1-3 Years 3-5 Years More Than5 Years (US$ thousands) Operating lease obligations, including imputed interest(1) 299,171 77,895 153,203 58,238 9,835 Obligations for leases that have not yet commenced, includingimputed interest(1) 30,404 4,154 13,190 12,561 499 Finance lease obligations, including imputed interest 156 63 93 — — Debt, including scheduled interest(2) 2,495,123 39,526 128,053 2,327,544 — Purchase commitments(3) 198,652 195,833 919 — 1,900 Minimum guarantee commitments(4) 24,473 13,073 11,000 — 400 Total 3,047,979 330,544 306,458 2,398,343 12,634 (1)For further information, refer to Note 9 of the audited financial statements included in this annual report on Form 20-F.(2)The principal balances of the 2023 convertible notes, 2024 convertible notes and 2025 convertible notes are reflected in the payment period in the table abovebased on the contractual maturity assuming no exchange or conversion subsequent to December 31, 2020.(3)For further information, refer to Note 24 of the audited financial statements included in this annual report on Form 20-F.(4)We have commitments to pay minimum royalty fees to game developers for certain online games we have licensed.Other than the contractual obligations and commercial commitments set forth above, we did not have any long-term debt obligations, finance leaseobligations, operating lease obligations, purchase obligations or other long-term liabilities as of December 31, 2020.102Table of ContentsG. Safe HarborSee “Forward-Looking Statements” at the beginning of this annual report.ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEESA.Directors and Senior ManagementThe following table provides information regarding our directors and executive officers as of the date of this annual report.Directors and Executive Officers Age Position/TitleForrest Xiaodong Li 43 Chairman and Group Chief Executive OfficerGang Ye 40 Director and Group Chief Operating OfficerYuxin Ren 45 DirectorTony Tianyu Hou 42 Director and Group Chief Financial OfficerDavid Heng Chen Seng 54 DirectorKhoon Hua Kuok 42 DirectorDavid Jingye Chen 40 Chief Product Officer of ShopeeChris Zhimin Feng 38 Chief Executive Officer of Shopee and Chief Executive Officer of SeaMoneyYanjun Wang 40 Group Chief Corporate Officer, Group General Counsel and CompanySecretaryTerry Feng Zhao 37 President of GarenaForrest Xiaodong Li is our founder and has served as the chairman of Sea Limited and our group chief executive officer since our inception in May 2009. Heis a member of the board of directors of the Singapore Economic Development Board, and serves as an independent non-executive director of Shangri-La Asia Limited.He also serves on the board of trustees for the National University of Singapore, and on the advisory council of Stanford University’s Graduate School of Business.Forrest holds an M.B.A. degree from Stanford University’s Graduate School of Business and a bachelor’s degree in Engineering from Shanghai Jiaotong University.Gang Ye is our co-founder and has been a member of the board of directors of Sea Limited since March 2010. Gang has served as our group chief operatingofficer since January 2017 and served as our group chief technology officer between March 2010 and December 2016. He previously worked at Wilmar Internationaland the Economic Development Board of Singapore. Gang holds B.S. degrees in Computer Science and Economics from Carnegie Mellon University.103Table of ContentsYuxin Ren has been a member of the board of directors of Sea Limited since September 2013. Yuxin is the chief operating officer at Tencent Holdings Limitedand is currently leading the development of the Platform & Content Group and the Interactive Entertainment Group. Yuxin also currently serves as a director or officerof certain subsidiaries of Tencent Holdings Limited. Prior to joining Tencent, Yuxin worked at Huawei Technologies Co., Ltd. He holds an EMBA degree from ChinaEurope International Business School (CEIBS) and a Bachelor of Science degree in Computer Science and Engineering from the University of Electronic Science andTechnology of China.Tony Tianyu Hou has served as our director since February 2018. Tony joined our company in September 2010 and has served as our group chief financialofficer since January 2013. He previously served as our financial controller. Before joining us, Tony was an audit senior manager at Ernst & Young, where he workedfrom October 2000 to September 2010 in both China and the U.S. Tony is a non-practicing U.S. Certified Public Accountant and a non-practicing member of theChinese Institute of Certified Public Accountants. He holds an M.B.A. degree from the University of Chicago’s Booth School of Business and a bachelor’s degree inAccounting from Fudan University.David Heng Chen Seng has served as our director since October 2017. David has been the chief executive officer of ABC World Pte. Ltd., a private equityfund, since February 2019. He had held several senior positions at Temasek from 2003 to 2018, including joint head of consumer, head of real estate investment, jointhead of China and head of Japan and Korea, and left Temasek as a senior advisory director in January 2019. Prior to joining Temasek in 2003, he was with DeutscheBank AG as a vice president in its telecom, media and technology investment banking division from 2000 to 2003 and was a vice president of merger and acquisitionadvisory for Hong Kong and Singapore at Deutsche Bank from 1998 to 2000. Prior to joining Deutsche Bank, David worked at Standard Chartered Merchant Bank. Hecurrently serves as a director at Singapore Art Museum, among other companies. David holds an M.B.A. degree from the University of Hull and a Bachelor ofEngineering degree from the University of Canterbury.Khoon Hua Kuok has served as our director since October 2017. Khoon Hua is the chairman of Kerry Holdings Limited, the main investment holdingcompany of the Kuok Group in Hong Kong. He is also a director of Kerry Group Limited and Kuok (Singapore) Limited, the executive chairman of Kerry LogisticsNetwork Limited and the vice chairman and chief executive officer of Kerry Properties Limited, both of which are companies listed on the Hong Kong Stock Exchange,and a non-executive director of Wilmar International Limited, a company listed on the Singapore Stock Exchange. Khoon Hua holds a B.A. degree in Economics fromHarvard University.David Jingye Chen is our co-founder and serves as the chief product officer of Shopee. He was formerly group chief of staff, a position he held from January2017 to December 2019. Prior to that, David served as our group chief operating officer from our inception in May 2009 to December 2016. He previously held positionsat PSA Corporation Limited. David holds a bachelor’s degree in Computer Engineering with first class honors from the National University of Singapore.Chris Zhimin Feng joined our company in March 2014 and has served as the chief executive officer of Shopee since July 2015 and as the chief executiveofficer of SeaMoney since March 2020. Chris previously served as our head of mobile business and was responsible for operating our mobile game business. Beforejoining our company, Chris was part of the Southeast Asia founding team at Rocket Internet SE from December 2011 to February 2014, establishing ventures such asZalora and Lazada. Chris also served as regional managing director at Zalora and chief purchasing officer at Lazada during his tenure at Rocket Internet SE. FromMarch 2005 to December 2011, Chris served as a management consultant at McKinsey & Company, across its Frankfurt, Copenhagen and Singapore offices. Chrisholds a bachelor’s degree in Computer Science with first class honors from the National University of Singapore.Yanjun Wang is our group chief corporate officer, group general counsel and company secretary. Yanjun has served as our group chief corporate officer sinceMay 2019, company secretary since November 2017 and group general counsel since March 2014. Prior to joining our company, Yanjun was an attorney at Skadden,Arps, Slate, Meagher & Flom LLP in New York and Kirkland & Ellis in Hong Kong. She is qualified to practice law in the State of New York. She holds a J.D. degreefrom Harvard Law School and a B.A. degree in Economics from Harvard University.104Table of ContentsTerry Feng Zhao has been with our company since our inception in 2009 and has served as the president of Garena since November 2018. Prior to assuminghis current role, Terry has also served in a number of senior roles in our digital entertainment business across several key markets. Terry holds a bachelor’s degree inComputer Engineering with first class honors from Nanyang Technological University.Employment Agreements and Indemnification AgreementsWe have entered into employment agreements with our executive officers. Each of our executive officers is employed for a continuous term unless either weor the executive officer gives prior notice to terminate such employment. We may terminate the employment for cause, at any time, without notice or remuneration, forcertain acts of the executive officer, including but not limited to the commitments of any serious or persistent breach or non-observance of the terms and conditions ofthe employment, conviction of a criminal offense other than one which in the opinion of the board does not affect the executive’s position, willful, disobedience of alawful and reasonable order, misconduct being inconsistent with the due and faithful discharge of the executive officer’s material duties, fraud or dishonesty, orhabitual neglect of his or her duties. An executive officer may terminate his or her employment at any time with a three- to six-month prior written notice.Each executive officer has agreed to hold, both during and after the employment agreement expires or is earlier terminated, in strict confidence and not to useor disclose to any person, corporation or other entity without written consent, any confidential information or trade secrets. Each executive officer has also agreed todisclose in confidence to us all inventions, intellectual and industry property rights and trade secrets which they made, discover, conceive, develop or reduce topractice during the executive officer’s employment with us and to assign to our company all of his or her associated titles, interests, patents, patent rights, copyrights,trade secret rights, trademarks, trademark rights, mask work rights and other intellectual property and rights anywhere in the world which the executive officer maysolely or jointly conceive, invent, discover, reduce to practice, create, drive, develop or make, or cause to be conceived, invented, discovered, reduced to practice,created, driven, developed or made, during the period of the executive officer’s employment with us that are either related to our business, actual or demonstrablyanticipated research or development or any of our products or services being developed, manufactured, marketed, sold, or are related to the scope of the employmentor make use of our resources. In addition, all executive officers have agreed to be bound by non-competition and non-solicitation restrictions set forth in theiragreements. Each executive officer has agreed to devote all his or her working time and attention to our business and use best efforts to develop our business andinterests. Moreover, each executive officer has agreed not to, for a certain period following termination of his or her employment or expiration of the employmentagreement: (i) carry on or be engaged, concerned or interested directly or indirectly whether as shareholder, director, employee, partner, agent or otherwise carry onany business in direct competition with us, (ii) solicit or entice away any of our customer, client, representative or agent, or (iii) employ, solicit or entice away orattempt to employ, solicit or entice away any of our officers, managers, consultants or employees.We have entered into indemnification agreements with our directors and executive officers, pursuant to which we will agree to indemnify our directors andexecutive officers against certain liabilities and expenses incurred by such persons in connection with claims made by reason of their being such a director orexecutive officer.B. CompensationCompensation of Directors and Executive OfficersFor the year ended December 31, 2020, we paid and accrued fees and compensation (excluding equity-based awards) of approximately US$7.0 million to ourcurrent directors and executive officers as a group. In 2020, we also granted them options to purchase an aggregate of 5,000,000 Class A ordinary shares. For moreinformation on share incentive grants to our directors and executive officers, see “—Share Incentive Plan.”Our Singapore subsidiaries are required by the laws and regulations of Singapore to make contributions, as employers, to the Central Provident Fund for ourexecutive officers who are employed by our Singapore subsidiaries and are Singapore citizens or permanent residents as prescribed under the Central Provident FundAct. The contribution rates vary, depending on the age of the executive officers, and whether such executive officer is a Singapore citizen or permanent resident.105Table of ContentsShare Incentive PlanWe maintain a share incentive plan in order to attract, motivate, retain and reward talent, provide additional incentives to our officers, employees, directorsand other eligible persons, and promote the success of our business and the interests of our shareholders.2009 Share Incentive PlanWe adopted the 2009 Plan to promote the success of our business and the interests of our shareholders by providing additional incentives to attract,motivate, retain and reward our officers, employees, directors and other eligible persons and to link the interests of the award recipients with our shareholders. InFebruary 2018, our board of directors approved automatic increases on January 1 of each of 2019, 2020, 2021 and 2022 of the maximum aggregate number of ordinaryshares which may be issued under the 2009 Plan by 5% of the total number of ordinary shares of all classes of the company outstanding on that day immediatelybefore the increase. In addition, in July 2019, our board of directors approved a one-time increase of the maximum aggregate number of shares which may be issuedpursuant to the 2009 Plan by three million, and at the same time reduced three million shares from the scheduled automatic increase of shares pursuant to the aforesaidautomatic annual increase mechanism on January 1, 2020. Currently, the maximum aggregate number of ordinary shares which may be issued pursuant to all awardsunder the 2009 Share Incentive Plan has increased to 148,888,743 beginning January 1, 2021 from 123,292,170 as of December 31, 2020. The awards expire 10 years afterthe date of the grant.As of March 5, 2021, outstanding awards granted under the 2009 Plan consisted of (i) options to purchase 48,566,524 Class A ordinary shares, (ii) 9,265,501restricted Class A ordinary share units, and (iii) 194,926 share appreciation rights.The following paragraphs summarize the terms of the 2009 Plan.Plan Administration. Our board of directors or one or more committees appointed by the board act as the plan administrator.Types of Awards. The 2009 Plan permits grants of (i) options to purchase Class A ordinary shares, (ii) awards of share appreciation rights to receive apayment in cash, or, at the discretion of the plan administrator, in Class A ordinary shares, equal to the excess of the fair market value of a Class A ordinary share onthe date the share appreciate right is exercised over the base price of the share appreciate right, (iii) awards of restricted Class A ordinary shares or unrestricted ClassA ordinary shares, or (iv) awards of restricted share units, which are contractual rights to receive Class A ordinary shares of our company. Any Class A ordinaryshares issuable pursuant to the awards under the 2009 Plan may be represented by ADSs.Eligibility. Only our employees, officers, directors and individual consultants or advisors who render or have rendered bona fide services to us are eligibleto receive awards or grants under the 2009 Plan.Term of Awards. Each award under the 2009 Plan will (in the case of options and share appreciation rights) expire, or (in the case of share awards) vest or berepurchased by us not more than 10 years after the date of grant which term be extended by the plan administrator to a maximum of 10 years. An award is onlyexercisable or distributable before the eligible individual’s termination of service with us, unless determined otherwise by the plan administrator or set forth in theaward agreement.Vesting Schedule and Other Restrictions. The plan administrator has discretion in determining and making adjustment in the individual vesting schedulesand other restrictions applicable to the awards granted under the 2009 Plan. The vesting schedule is set forth in each award agreement.Exercise Price and Purchase Price. The plan administrator has discretion in determining the price of the awards, subject to a number of limitations, andhas discretion in making adjustments in the exercise price of the options or the base price of the share appreciation rights.Acceleration of Vesting upon Corporate Transaction. Upon the occurrence of a change in control event, the plan administrator may make provision for acash payment in settlement of, or for the assumption, substitution or exchange of any or all outstanding awards (or the cash, securities or other property deliverable tothe holder(s) of any or all outstanding awards) based upon, to the extent relevant in the circumstances, the distribution or consideration payable to holders of theClass A ordinary shares upon or in respect of such event.106Table of ContentsTermination. The plan will terminate in 2027. Our board of directors may terminate the plan at any time, in whole or in part.Amendment, Suspension or Termination. The administrator may waive conditions of or limitations on awards to award recipients that the administrator inthe prior exercise of its discretion has imposed, without the consent of award recipients, and may make other changes to the terms and conditions of awards. However,no amendments, suspension or termination of the 2009 Plan or amendments of any outstanding award may, without written consent of the award recipients, materiallyand adversely affect any rights or benefits of the award recipient or obligations of us under any award granted under the plan prior to the effective date of suchchange. Subject to the above, our board of directors may, at any time, terminate or, from time to time amend, modify or suspend the 2009 Plan, in whole or in part. Noawards may be granted during any period that the board of directors suspends the 2009 Plan. To the extent set forth in the 2009 Plan and where required by theapplicable laws, rules or regulations, any amendments to the 2009 Plan shall be subject to shareholders’ approval.Transfer Restrictions. All awards are non-transferable and will not be subject in any manner to sale, transfer, anticipation, alienation, assignment, pledge,encumbrance or charge except in certain situations.Power of Attorney on Voting. Under the award agreements, with respect to the Class A ordinary shares issued upon exercise of options or vesting ofrestricted shares or restricted share units, almost all of our award recipients appoint Mr. Forrest Xiaodong Li, our chairman and group chief executive officer, as his orher irrevocable proxy to vote all such Class A ordinary shares on all matters on which such Class A ordinary shares are entitled to vote.107Table of ContentsThe table below sets forth certain information as of December 31, 2020 concerning the outstanding awards we have granted to our current directors andexecutive officers on an individual basis.Name Class AOrdinarySharesUnderlyingOutstandingAwardsGranted Price(US$/Share) Date of Grant Date of ExpirationForrest Xiaodong Li 3,800,000(1)(4) 15.0 April 30, 2018 April 30, 2028 10,000,000(1)(4) 15.0 April 30, 2019 April 30, 2029 5,000,000(1)(4) 15.0 April 30, 2020 April 30, 2030 675(3) — January 31, 2018 —Gang Ye 7,650,000(1) 15.0 February 28, 2018 February 28, 2028 540(3) — January 31, 2018 — 25,000(3) — February 28, 2018 —Tony Tianyu Hou *(1) 4.5 January 26, 2015 January 26, 2025 *(1) 15.0 February 28, 2018 February 28, 2028 *(3) — January 31, 2018 — *(3) — February 28, 2018 —David Heng Chen Seng *(3) — October 19, 2019 —Khoon Hua Kuok 5,000(3) — October 19, 2019 —David Jingye Chen 802,140(1) 1.8 January 11, 2014 January 11, 2024 300,000(1) 4.5 January 26, 2015 January 26, 2025 2,000,000(1) 15.0 February 28, 2018 February 28, 2028 540(3) — January 31, 2018 — 25,000(3) — February 28, 2018 —Chris Zhimin Feng *(1) 0.5 January 10, 2014 January 10, 2024 *(1) 4.5 January 26, 2015 January 26, 2025 *(1) 15.0 February 28, 2018 February 28, 2028 *(1) 15.0 February 28, 2019 February 28, 2029 *(3) — January 31, 2018 —Yanjun Wang *(1) 15.0 February 28, 2018 February 28, 2028 *(3) — January 31, 2018 — *(3) — February 28, 2018 —Terry Feng Zhao *(1) 4.5 January 26, 2015 January 26, 2025 *(1) 15.0 January 31, 2019 January 31, 2029 *(3) — January 31, 2018 — *(3) — February 28, 2018 —All directors and executive officers as a group 44,338,692 *Each of these directors and executive officers beneficially owns less than 1% of our total outstanding shares as of December 31, 2020.(1)Represents options to purchase Class A ordinary shares.(2)Represents unvested restricted Class A ordinary shares.(3)Represents unvested restricted shares units for Class A ordinary shares.(4)Granted pursuant to the previously disclosed authorization by our board of directors on April 8, 2018 of options to purchase a total of twenty million Class Aordinary shares, which were granted to Mr. Li between April 2018 and April 2020 and to vest between April 2019 and April 2022.In May 2019, the board of the company generally authorized grants to Forrest and certain other employees of options to purchase 20 million and 30 million ClassA ordinary shares of the company, respectively, at US$22.50 per share, with the actual grants of such awards conditioned on the availability of such shares under our2009 Plan. To date, these awards have not been granted. The awards, when granted, shall have a four-year vesting period commencing no earlier than January 1, 2022.108Table of ContentsC. Board PracticeOur board of directors consists of six directors. A director is not required to hold any shares in our company to qualify to serve as a director. A director whois in any way, whether directly or indirectly, interested in a contract or proposed contract with our company is required to declare the nature of his interest at a meetingof our directors. A general notice given to the directors by any director to the effect that he is a member, shareholder, director, partner, officer or employee of anyspecified company or firm and is to be regarded as interested in any contract or transaction with that company or firm shall be deemed a sufficient declaration ofinterest for the purposes of voting on a resolution in respect to a contract or transaction in which he has an interest, and after such general notice it shall not benecessary to give special notice relating to any particular transaction. Subject to applicable New York Stock Exchange listing rules and disqualification by thechairman of the relevant board meeting, a director may vote in respect of any contract or proposed contract or arrangement notwithstanding that he may be interestedtherein and if he does so his vote shall be counted and he may be counted in the quorum at any meeting of the directors at which any such contract or proposedcontract or arrangement is considered. Our board of directors may exercise all of the powers of our company to borrow money, to mortgage or charge its undertaking,property and uncalled capital, or any part thereof, and to issue debentures, debenture stock or other securities whenever money is borrowed or as security for anydebt, liability or obligation of our company or of any third-party. None of our directors has a service contract with us that provides for benefits upon termination ofservice, or an appropriate negative statement.Committees of the Board of DirectorsWe have established an audit committee, a compensation committee and a nominating committee under the board of directors. We have adopted a charter foreach of the three committees. Each committee’s members and functions are described below.109Table of ContentsAudit Committee. Our audit committee consists of Mr. David Heng Chen Seng and Mr. Khoon Hua Kuok, and is chaired by Mr. David Heng Chen Seng.Each of Mr. David Heng Chen Seng and Mr. Khoon Hua Kuok meets the independence standards under Rule 10A-3 under the Exchange Act. Mr. David Heng ChenSeng also satisfies the “independence” requirements of Section 303A of the New York Stock Exchange Listed Company Manual. Our board of directors has alsodetermined that Mr. David Heng Chen Seng qualifies as an “audit committee financial expert” within the meaning of the SEC rules and that both members of the auditcommittee are financially literate within the meaning of Section 303A of the New York Stock Exchange Listed Company Manual. The audit committee oversees ouraccounting and financial reporting processes and the audits of the financial statements of our company. The audit committee is responsible for, among other things:●selecting our independent registered public accounting firm and pre-approving all auditing and non-auditing services permitted to be performed by ourindependent registered public accounting firm;●reviewing with our independent registered public accounting firm any audit problems or difficulties and management’s response;●reviewing and approving related party transactions;●discussing the annual audited financial statements with management and our independent registered public accounting firm;●meeting periodically with the management and our internal auditor and our independent registered public accounting firm; and●reviewing and discussing our accounting and control policies and procedures and any steps taken to monitor and control major financial risk exposure.Compensation Committee. Our compensation committee consists of Mr. Forrest Xiaodong Li and Mr. Khoon Hua Kuok, and is chaired by Mr. ForrestXiaodong Li. Our compensation committee assists the board in reviewing and evaluating the compensation structure, including compensation plans relating to ourdirectors and executive officers. The compensation committee is responsible for, among other things:●reviewing and approving the compensation package for our chief executive officer;●reviewing the annual bonus, long-term incentive compensation, stock option, employee pension and welfare benefit plans of our company;●reviewing annually and administering all long-term incentive compensation or equity plans; and●selecting and receiving advice from compensation consultants, legal counsel or other advisors after taking into consideration all factors relevant to thatperson’s independence from management.Corporate Governance and Nominating Committee. Our corporate governance and nominating committee consists of Mr. Forrest Xiaodong Li and Mr.Khoon Hua Kuok, and is chaired by Mr. Forrest Xiaodong Li. The corporate governance and nominating committee assists the board in selecting individuals qualifiedto become our directors and in determining the composition of the board of directors. The corporate governance and nominating committee is responsible for, amongother things:●identifying and recommending nominees for election or re-election to our board of directors or for appointment to fill any vacancy;●reviewing annually with our board of directors its current composition in light of the characteristics of independence, qualification, experience andavailability of service to us;●review the performance of our board of directors and management and will make appropriate recommendations for improving performance; and●monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures to ensureproper compliance.110Table of ContentsDuties of DirectorsUnder Cayman Islands law, our directors owe fiduciary duties to our company, including a duty of loyalty, a duty to act honestly, and a duty to act in whatthey consider in good faith to be in our best interests. Our directors must also exercise their powers only for a proper purpose. Our directors also owe to our companya duty to act with skill and care. It was previously considered that a director need not exhibit in the performance of his duties a greater degree of skill than mayreasonably be expected from a person of his knowledge and experience. However, English and Commonwealth courts have moved towards an objective standard withregard to the required skill and care and these authorities are likely to be followed in the Cayman Islands. In fulfilling their duty of care to us, our directors must ensurecompliance with our memorandum and articles of association, as amended and restated from time to time. Our company has the right to seek damages if a duty owedby our directors is breached. In limited exceptional circumstances, a shareholder may have the right to seek damages in our name if a duty owed by our directors isbreached.The functions and powers of our board of directors include, among others:●convening shareholders’ annual general meetings and reporting its work to shareholders at such meetings;●declaring dividends and distributions;●appointing officers and determining the term of office of officers;●exercising the borrowing powers of our company and mortgaging the property of our company; and●approving the transfer of shares of our company, including the registering of such shares in our share register.Terms of Directors and Executive OfficersEach of our directors holds office until the expiration of his or her term, as may be provided in a written agreement with our company, and his or her successorhas been elected and qualified, until his or her resignation or until his or her office is otherwise vacated in accordance with our articles of association. All of ourexecutive officers are appointed by and serve at the discretion of our board of directors. Our directors may be appointed or removed from office by an ordinaryresolution of shareholders. A director will be removed from office automatically if, among other things, the director (i) becomes bankrupt or makes any arrangement orcomposition with his creditors; (ii) dies or is found to be or becomes of unsound mind; (iii) resigns by notice in writing to our company; (iv) without special leave ofabsence from our board of directors, is absent from three consecutive meetings of the board and the board resolves that his office be vacated; or (v) is removedpursuant to our amended and restated memorandum and articles of association. The compensation of our directors is determined by the board of directors. There is nomandatory retirement age for directors.D.EmployeesOur human capital has scaled alongside the growth of our business. We had a total of approximately 22,600, 29,800 and 33,800 employees as of December 31,2018, 2019 and 2020, respectively. The following table indicates the distribution of our employees by function as of December 31, 2020:Function Number ofEmployees General operation 16,000 Sales and marketing 9,400 General and administrative 3,100 Research and development 5,300 Total 33,800 We generally enter into standard confidentiality and employment agreements with our management and other employees. These contracts include a standardnon-compete covenant that prohibits the employee from competing with us, directly or indirectly, during his or her employment and for one year after the terminationof his or her employment.111Table of ContentsWe believe that we maintain a good working relationship with our employees and we have not experienced any significant labor disputes as of the date ofthis annual report.E.Share OwnershipThe following table sets forth information concerning the beneficial ownership of our ordinary shares as of March 5, 2021:●each of our directors and executive officers; and●each person known to us to beneficially own more than 5% of our ordinary shares.The calculations in the table below are based on 519,588,563 ordinary shares issued and outstanding as of March 5, 2021, comprising 367,412,860 Class Aordinary shares and 152,175,703 Class B ordinary shares.Beneficial ownership is determined in accordance with the rules and regulations of the SEC. In computing the number of shares beneficially owned by aperson and the percentage ownership of that person, we have included shares that the person has the right to acquire within 60 days, including through the exerciseof any option, warrant, or other right or the conversion of any other security. These shares, however, are not included in the computation of the percentage ownershipof any other person. Class AOrdinary Shares Class BOrdinary Shares Percentage ofTotal Class Aand Class BOrdinaryShares† Percentage ofTotal VotingPower Held†† Directors and Executive Officers:(1) Forrest Xiaodong Li(2) 45,722,991 92,101,446 25.1 37.7 Gang Ye(3) 33,285,313 — 6.4 2.9 Yuxin Ren * — * * Tony Tianyu Hou * — * * David Heng Chen Seng * — * * Khoon Hua Kuok(4) 15,230,625 — 2.9 1.8 David Jingye Chen(5) 10,820,917 — 2.1 1.0 Chris Zhimin Feng * — * * Yanjun Wang * — * * Terry Feng Zhao * — * * All directors and executive officers as a group 98,005,488 92,101,446 34.4 43.7 Principal Shareholders: Tencent entities(6) 12,109,584 106,647,910 22.9 23.3 Blue Dolphins Venture Inc(7) — 45,527,793 8.8 16.6 T. Rowe Price Associates, Inc.(8) 32,228,372 — 6.2 3.9 *Less than 1% of our total outstanding shares on an as converted basis.†For each person and group included in this column, percentage ownership is calculated by dividing the number of shares beneficially owned by such personor group, including shares that such person or group has the right to acquire within 60 days after March 5, 2021, by the sum of Class A and Class B ordinaryshares, and the number of Class A ordinary shares that such person or group has the right to acquire beneficial ownership within 60 days after March 5, 2021.††For each person and group included in this column, percentage of total voting power represents voting power based on both Class A and Class B ordinaryshares beneficially owned by such person or group with respect to all of our outstanding Class A and Class B ordinary shares as one single class. Holders ofClass A ordinary shares are entitled to one vote per share and holders of Class B ordinary shares are entitled to three votes per share on all matters subject toa shareholders’ vote.112Table of Contents(1)Unless otherwise indicated, the business address of our directors and executive officers is c/o 1 Fusionopolis Place, #17-10, Galaxis, Singapore 138522.(2)Represents (i) 45,527,793 Class B ordinary shares held by Blue Dolphins Venture Inc, a British Virgin Islands company wholly-owned by Mr. Li, (ii) 668,291Class A ordinary shares beneficially owned by Mr. Li (including through an entity solely owned and controlled by Mr. Li), (iii) 13,400,000 Class A OrdinaryShares issuable upon exercise of options held by Mr. Li within 60 days from March 5, 2021, (iv) 135 Class A Ordinary Shares issuable upon vesting ofrestricted share units held by Mr. Li within 60 days from March 5, 2021, (v) an aggregate of 31,654,565 Class A Ordinary Shares over which Mr. Li has receivedirrevocable voting proxies from the respective owners of such shares (namely, certain directors and employees, certain affiliates of our employees, GarenaESOP Program (PTC) Limited and a family member of Mr. Li), including 15,714,464 Class A Ordinary Shares issuable upon exercise of options within 60 daysfrom March 5, 2021 and 769,351 Class A Ordinary Shares issuable upon vesting of restricted share units within 60 days from March 5, 2021, and (vi)46,573,653 Class B ordinary shares held by Tencent for which it has given Mr. Li an irrevocable proxy to vote such Class B ordinary shares (such Class Bordinary shares do not include those shares covered solely by an irrevocable proxy giving Mr. Li the voting rights only over matters relating to our boardsize and composition).(3)Represents (i) 30,135,205 Class A ordinary shares held or beneficially owned by Mr. Ye, and (ii) 3,150,108 Class A ordinary shares issuable upon exercise ofoptions or vesting of restricted share units held by Mr. Ye within 60 days from March 5, 2021. With respect to 9,083,107 Class A ordinary shares, ForrestXiaodong Li has been given an irrevocable proxy with regard to all matters that are subject to the vote of shareholders, and such numbers are excluded fromthe total voting power of Mr. Ye.(4)Includes (i) 1,061,950 Class A ordinary shares held or beneficially owned by Bright Magic Investments Limited, a British Virgin Islands company, (ii) 1,270,000Class A ordinary shares beneficially owned by Crystal White Limited, a Hong Kong company, (iii) 2,926,071 Class A ordinary shares held by Fexos Limited, aBritish Virgin Islands company, (iv) 4,065,000 Class A ordinary shares beneficially owned by Velmar Company Limited, a Hong Kong company, (v) 3,696,695Class A ordinary shares beneficially owned by Macromind Investments Limited, a British Virgin Islands company, including 1,363,945 Class A ordinary sharesunderlying US$27 million principal amount of our 2023 convertible notes and 1,994,750 Class A ordinary shares underlying US$100 million principal amount ofour 2024 convertible notes, both of which are currently convertible, (vi) 1,955,184 Class A ordinary shares held by City Jet Limited, a British Virgin Islandscompany, (vii) 26,000 Class A ordinary shares beneficially owned by Joyce M. Kuok Foundation, a Hong Kong company, (viii) 26,000 Class A ordinary sharesbeneficially owned by Zheng Ge Ru Foundation, a Hong Kong company, and (ix) 188,725 Class A ordinary shares held by Peacebright Assets Limited, aBritish Virgin Islands company. Bright Magic Investments Limited, Crystal White Limited, Fexos Limited, Macromind Investments Limited, and VelmarCompany Limited are all wholly-owned subsidiaries of Kerry Group Limited. Mr. Kuok is a director of Kerry Group Limited and has indirect minority interestsin these entities. Mr. Kuok may be deemed to have beneficial interests in the shares beneficially owned by these entities. City Jet Limited’s shareholders areJoyce M. Kuok Foundation and Zheng Ge Ru Foundation. As Mr. Kuok is a governor of these two foundations, he may be deemed to have or shareinvestment power which includes the power to dispose, or to direct the disposition of, the shares beneficially owned by City Jet Limited and these twofoundations. Peacebright Assets Limited is an investment company of a discretionary trust in which Mr. Kuok is one of the discretionary beneficiaries. Mr.Kuok disclaims beneficial ownership of Shares held or beneficially owned by all of the aforesaid entities for all other purposes. The business address ofKerry Group Limited is 32/F, Kerry Centre, 683 King’s Road, Quarry Bay, Hong Kong. The business address of all the other aforesaid entities is 31/F, KerryCentre, 683 King’s Road, Quarry Bay, Hong Kong.(5)Represents (i) 8,268,669 Class A ordinary shares held or beneficially owned by Mr. Chen, and (ii) 2,552,248 Class A ordinary shares issuable upon exercise ofoptions or vesting of restricted share units held by Mr. Chen within 60 days from March 5, 2021. With respect to 2,663,545 Class A ordinary shares, ForrestXiaodong Li has been given an irrevocable proxy with regard to all matters that are subject to the vote of shareholders, and such numbers are excluded fromthe total voting power of Mr. Chen.113Table of Contents(6)Represents (i) 4,613,333 Class A ordinary shares beneficially owned by Tencent Holdings Limited through Huang River Investment Limited, (ii) 106,647,910Class B ordinary shares beneficially owned by Tencent Holdings Limited through Tencent Limited and another Tencent entity, which are both wholly-ownedby Tencent Holdings Limited, and (iii) 7,496,251 Class A ordinary shares held by Tencent Limited. With respect to 46,573,653 Class B ordinary shares, ForrestXiaodong Li has been given an irrevocable proxy with regard to matters that are subject to the vote of shareholders, and such numbers are excluded from thetotal voting power of the Tencent entities. Such Class B ordinary shares do not include those shares covered solely by an irrevocable proxy giving Mr. Li thevoting rights only over matters relating to our board size and composition. Tencent Holdings Limited is a limited liability company organized and existingunder the laws of the Cayman Islands and is currently listed on Hong Kong Stock Exchange. The registered office of Tencent Holdings Limited is CricketSquare, Hutchins Drive, P.O. Box 2681, Grand Cayman KY1-1111, Cayman Islands.(7)Represents 45,527,793 Class B ordinary shares held by Blue Dolphins Venture Inc, a company wholly owned by Forrest Xiaodong Li. The registered addressof Blue Dolphins Venture Inc is Kingston Chambers, PO Box 173, Road Town, Tortola, British Virgin Islands.(8)Information is based on a Schedule 13G filed with the SEC on February 16, 2021 by T. Rowe Price Associates, Inc. ("Price Associates"). Price Associatesreported sole voting power over 12,603,054 ADSs, each representing one Class A ordinary share, and sole dispositive power over 32,228,372 ADSs. Theaddress of Price Associates is 100 E. Pratt Street, Baltimore, Maryland 21202, U.S.A.Our ADSs are traded on the New York Stock Exchange and brokers or other nominees may hold ADSs in “street name” for customers who are the beneficialowners of our ADSs. As a result, we may not be aware of each person or group of affiliated persons who beneficially own more than 5.0% of our ordinary shares.Our issued and outstanding share capital consists of Class A ordinary shares and Class B ordinary shares. Holders of Class A ordinary shares and Class Bordinary shares have the same rights except for voting and conversion rights and certain approval rights. Each Class A ordinary share is entitled to one vote, and eachClass B ordinary share is entitled to three votes and is convertible into one Class A ordinary share. Class A ordinary shares are not convertible into Class B ordinaryshares under any circumstances. See “Item 10. Additional Information—B. Memorandum and Articles of Association” for a more detailed description of our Class Aordinary shares and Class B ordinary shares and proxy arrangements between Forrest Xiaodong Li, our founder, chairman and group chief executive officer, andTencent Holdings Limited and its affiliates.As of March 5, 2021, 311,898,657 of our Class A ordinary shares were held as ADSs by the depositary for our ADS holders. Other than the depositary, we arenot aware of any record shareholder being a United States citizen or an entity incorporated in the United States as of March 5, 2021.We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company.For certain information as of December 31, 2020 concerning the outstanding awards we have granted to our directors and executive officers individuallypursuant to our share incentive plan, see “—B. Compensation—Share Incentive Plan.” Other than under the 2009 Plan, there are no arrangements for involving theemployees in the capital of the company, including any arrangement that involves the issue or grant of options or shares or securities of the company.ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONSA.Major ShareholdersSee “Item 6. Directors, Senior Management and Employees—E. Share Ownership.”114Table of ContentsB.Related Party TransactionsContractual Arrangements with Our VIEs, Their Shareholders and UsSee “Item 4. Information on the Company—C. Organizational Structure—Contractual Arrangements among Our VIEs, Their Shareholders and Us.”Transactions with Certain ShareholderIn 2020, we paid Tencent US$110.7 million in royalties and license fees for licensing their games and US$23.4 million for cloud computing services provided byTencent.Share Incentive PlanSee “Item 6. Directors, Senior Management and Employees—B. Compensation—Share Incentive Plan.”Employment Agreements and Indemnification AgreementsSee “Item 6. Directors, Senior Management and Employees—A. Directors and Senior Management—Employment Agreements and IndemnificationAgreements.”C.Interest of Experts and CounselNot applicable.ITEM 8.FINANCIAL INFORMATIONA.Consolidated Statement and Other Financial InformationWe have appended consolidated financial statements filed as part of this annual report.Legal and Administrative ProceedingsFrom time to time, we are and may become involved in legal proceedings, claims, investigations, and other disputes incidental to the ordinary conduct of ourbusiness including, among other things, contract or licensing disputes, copyright, trademark and other intellectual property infringement claims, consumer protectionclaims, employment related cases, disputes between consumers and third-party sellers or merchants, and disputes concerning other matters incidental to the ordinarycourse of our business. We may also initiate legal proceedings to protect our rights and interests. We are not a party to, nor are we aware of, any legal proceeding,investigation or claim which, in the opinion of our management, is likely to have any material adverse effect on our business, financial condition or results ofoperations, and our management believes that the risk of material loss in connection with the action discussed below is currently remote. However, in light of theinherent uncertainties involved in these matters, some of which are beyond our control, the risk of loss may become more likely and an adverse outcome of one ormore of these matters could be material to our results of operations or cash flows for any particular reporting period.Class Action LitigationOn November 1, 2018, a putative class action captioned Plutte v. Sea Limited, et al., No. 655436/2018, was filed in New York state court against our Company,certain of our officers and directors, and the underwriters arising out of our October 2017 initial public offering. On January 25, 2019, the plaintiffs filed an amendedcomplaint alleging that the prospectus and registration statements for our initial public offering contained material misstatements or omissions in violation of the U.S.securities laws. In March 2019, we moved to dismiss the action in its entirety. In July 2020, the parties reached agreement in principle to settle this class action atUS$10.75 million. In April 2021, the court held a hearing where it gave its final approval to the settlement. For risks and uncertainties relating to the pending casesagainst us, please see “Item 3. Key Information—D. Risk Factors—Business and Operational Related Risks—Other Operational Risks—We may be subject to risksrelated to litigation and regulatory proceedings.”115Table of ContentsDividend PolicyWe do not have any present plan to pay any cash dividends on our ordinary shares in the foreseeable future. We currently intend to retain most, if not all, ofour available funds and any future earnings to operate and expand our business.Our board of directors has discretion as to whether to distribute dividends, subject to certain requirements of Cayman Islands law. In addition, ourshareholders may by ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our directors. Under Cayman Islands law, aCayman Islands company may pay a dividend out of either profit or share premium account, provided that in no circumstances may a dividend be paid if this wouldresult in the company being unable to pay its debts as they fall due in the ordinary course of business. Even if our board of directors decides to pay dividends, theform, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractualrestrictions and other factors that the board of directors may deem relevant. If we pay any dividends on our ordinary shares, we will pay those dividends which arepayable in respect of the Class A ordinary shares underlying the ADSs to the depositary, as the registered holder of such Class A ordinary shares, and the depositarythen will pay such amounts to our ADS holders who will receive payment to the same extent as holders of our ordinary shares, subject to the terms of the depositagreement, including the fees and expenses payable thereunder. Cash dividends on our ordinary shares, if any, will be paid in U.S. dollars.B.Significant ChangesExcept as disclosed elsewhere in this annual report, we have not experienced any significant changes since the date of our audited consolidated financialstatements included in this annual report.ITEM 9.THE OFFER AND LISTINGA.Offer and Listing Details Our ADSs have been listed on the New York Stock Exchange since October 20, 2017 and traded under the symbol “SE.” Each ADS represents one Class Aordinary share.B.Plan of DistributionNot applicable.C.MarketsOur ADSs have been listed on the New York Stock Exchange since October 20, 2017 under the symbol “SE.”D.Selling ShareholdersNot applicable.E.DilutionNot applicable.F.Expenses of the IssueNot applicable.ITEM 10.ADDITIONAL INFORMATIONA.Share CapitalNot applicable.116Table of ContentsB.Memorandum and Articles of AssociationWe are a Cayman Islands exempted company and our affairs are governed by our amended and restated memorandum and articles of association and theCompanies Act (as amended) of the Cayman Islands, or Companies Act, and the common law of the Cayman Islands.We incorporate by reference into this annual report our Eighth Amended and Restated Memorandum and Articles of Association, the form of which was filedas Exhibit 3.2 to our registration statement on Form F-1 (File No. 333-220571) filed with the Securities and Exchange Commission on September 22, 2017. Ourshareholders adopted our Eighth Amended and Restated Memorandum and Articles of Association by a special resolution on September 14, 2017, and effectiveimmediately prior to the completion of our initial public offering of ADSs representing our Class A ordinary shares.The following are summaries of material provisions of our Eighth Amended and Restated Memorandum and Articles of Association and the Companies Actas they relate to the material terms of our ordinary shares.Registered Office and ObjectsOur registered office in the Cayman Islands is at the offices of Maples Corporate Services Limited at PO Box 309, Ugland House, Grand Cayman, KY1-1104,Cayman Islands.According to Clause 3 of our Eighth Amended and Restated Memorandum of Association, the objects for which we are established are unrestricted and wehave full power and authority to carry out any object not prohibited by the Companies Act or any other law of the Cayman Islands.Board of DirectorsSee “Item 6. Directors, Senior Management and Employees.”Exempted CompanyWe are an exempted company incorporated with limited liability under the Companies Act. The Companies Act distinguishes between ordinary residentcompanies and exempted companies. Any company that is registered in the Cayman Islands but conducts business mainly outside of the Cayman Islands may applyto be registered as an exempted company. The requirements for an exempted company are essentially the same as for an ordinary resident company except for theexemptions and privileges listed below:●an exempted company does not have to file an annual return of its shareholders with the Registrar of Companies;●an exempted company is not required to open its register of members for inspection;●an exempted company does not have to hold an annual general meeting;●an exempted company may issue no par value, negotiable or bearer shares;●an exempted company may obtain an undertaking against the imposition of any future taxation (such undertakings are usually given for 20 years in thefirst instance);●an exempted company may register by way of continuation in another jurisdiction and be deregistered in the Cayman Islands;●an exempted company may register as a limited duration company; and●an exempted company may register as a segregated portfolio company.117Table of ContentsOrdinary SharesGeneralAll of our issued and outstanding ordinary shares are fully paid and non-assessable. Our shareholders who are non-residents of the Cayman Islands mayfreely hold and vote their ordinary shares. Our Eighth Amended and Restated Memorandum and Articles of Association prohibit us from issuing bearer or negotiableshares. Our company will issue only non-negotiable shares in registered form, which will be issued when registered in our register of members.DividendsThe holders of our ordinary shares are entitled to receive such dividends as may be declared by our board of directors subject to our Eighth Amended andRestated Memorandum and Articles of Association and the Companies Act. In addition, our shareholders may by ordinary resolution declare a dividend, but nodividend may exceed the amount recommended by our directors. Under Cayman Islands law, dividends may be paid only out of profits, which include net earnings andretained earnings undistributed in prior years, and out of share premium, a concept analogous to paid-in surplus in the United States. No dividend may be declaredand paid unless our directors determine that, immediately after the payment, we will be able to pay our debts as they fall due in the ordinary course of business and wehave funds lawfully available for such purpose.Register of MembersUnder Cayman Islands law, we must keep a register of members and there must be entered therein:●the names and addresses of the members, together with a statement of the shares held by each member, and such statement shall confirm (i) of theamount paid or agreed to be considered as paid, on the shares of each member, (ii) the number and category of shares held by each member, and (iii)whether each relevant category of shares held by a member carries voting rights under the articles of association of the company, and if so, whethersuch voting rights are conditional;●the date on which the name of any person was entered on the register as a member; and●the date on which any person ceased to be a member.Under Cayman Islands law, the register of members of our company is prima facie evidence of the matters set out therein (i.e. the register of members will raisea presumption of fact on the matters referred to above unless rebutted) and a member registered in the register of members will be deemed as a matter of CaymanIslands law to have legal title to the shares as set against its name in the register of members.If the name of any person is, without sufficient cause, entered in or omitted from the register of members, or if default is made or unnecessary delay takesplace in entering on the register the fact of any person having ceased to be a member, the person or member aggrieved or any member or the company itself may applyto the Grand Court of the Cayman Islands for an order that the register be rectified, and the Court may either refuse such application or it may, if satisfied of the justiceof the case, make an order for the rectification of the register.Classes of Ordinary Shares; ConversionOur ordinary shares are divided into Class A ordinary shares and Class B ordinary shares. Except for conversion rights and voting rights and certainapproval rights, the Class A ordinary shares and Class B ordinary shares carry equal rights and rank pari passu with one another, including the rights to dividends andother capital distributions.118Table of ContentsEach Class B ordinary share is convertible into one Class A ordinary share at any time by the holder thereof, subject to certain restrictions agreed upon in anirrevocable proxy between our founder, Forrest Xiaodong Li, and Tencent. Under the irrevocable proxy, Tencent has agreed to grant an irrevocable proxy with respectto its Class B ordinary shares to the founder for any matters concerning the size and/or composition of our board that require a shareholder vote, including, anyresolution to approve, authorize or confirm any increase or decrease in the number of or any minimum or maximum number of directors of the Board, any appointmentor election of any new director or directors of the company, and any removal or replacement of any existing director or directors of the company. Our founder hasagreed to vote all of such Class B ordinary shares at the direction of Tencent for the election, removal and replacement of one member of the board, provided thenominee is qualified and permitted to serve on the board under applicable law and stock exchange rules. For all other matters that require shareholder vote, Tencentnominee is qualified and permitted to serve on the board under applicable law and stock exchange rules. For all other matters that require shareholder vote, Tencenthas agreed to grant our founder an irrevocable proxy with respect to a certain number of the Class B ordinary shares held by Tencent such that Tencent’s total votingpower in our company does not exceed 29% of the total voting power of all outstanding shares immediately after our initial public offering. Such percentage does notassume (i) the conversion of any outstanding convertible promissory notes or bonds issued by us, and (ii) the exercise of any over-allotment options by theunderwriters in our initial public offering.In addition, upon any sale, transfer, assignment or disposition of ownership in any Class B ordinary shares by a holder thereof or the direct or indirecttransfer or assignment of the voting power attached to such Class B ordinary shares through voting proxy or otherwise to any person or entity which is not apermitted transferee, such Class B ordinary shares will automatically convert into an equal number of Class A ordinary shares. Permitted transferees of our founderinclude certain of his relatives so long as our founder keeps voting rights over the Class B ordinary shares held by such transferees, and for Tencent include certain ofits affiliates. Upon termination of the Tencent irrevocable proxy, all issued and outstanding Class B ordinary shares will automatically convert into an equal number ofClass A ordinary shares (subject to the exception described below). The Tencent irrevocable proxy will terminate upon the earliest of (i) the tenth anniversary of thecompletion of our initial public offering, which can be extended if the parties agree; (ii) our founder voluntarily ceasing to be our group chief executive officer; (iii) thedeath or permanent incapacity of our founder; (iv) our founder failing to spend at least half of all work days, excluding certain leaves, in any given calendar year onour business, the end of such calendar year; (v) our founder voting the proxy shares on the Tencent director matter contrary to the written direction of Tencent; or (vi)the mutual agreement of the parties. However, if upon the tenth anniversary of the completion of our initial public offering the number of issued and outstanding ClassB ordinary shares held by Tencent is less than 50% of the total number of issued and outstanding Class B ordinary shares held by it immediately after the completionof our initial public offering, all of the Class B ordinary shares then held by Tencent will automatically convert into an equal number of Class A ordinary shares, and allof the Class B ordinary shares held by our founder and his permitted transferees will not convert into Class A ordinary shares until the earliest of an additional tenyears or any of the events described in (ii), (iii) and (iv) above. Class A ordinary shares are not convertible into Class B ordinary shares under any circumstances andno Class B ordinary shares will be issued after our initial public offering.Voting RightsHolders of our ordinary shares have the right to receive notice of, attend, speak and vote at general meetings of our company. Holders of Class A ordinaryshares and Class B ordinary shares shall at all times vote together as one class on all resolutions submitted to a vote for shareholders’ approval or authorization,except for certain class consents required under our articles of association. Each Class A ordinary share shall be entitled to one vote, and each Class B ordinary shareshall be entitled to three votes, on all matters subject to the vote at general meetings of our company. At any general meeting a resolution put to the vote of themeeting shall be decided on a poll. An ordinary resolution to be passed by the shareholders requires the affirmative vote of a simple majority of the votes cast in ageneral meeting. A special resolution requires the affirmative vote of 75% of the votes cast in a general meeting initially and, upon either the termination of theirrevocable proxy between our founder and Tencent relating to the size and/or composition of our board or the proxy between the same relating to other matters or thetransfer of all the Class B ordinary shares held by Tencent to any person or entity which is not a permitted transferee of Tencent, then two-thirds of the votes cast in ageneral meeting. Both ordinary resolutions and special resolutions may also be passed by a unanimous written resolution signed by all the shareholders of ourcompany, as permitted by the Companies Act and our Eighth Amended and Restated Memorandum and Articles of Association. A special resolution will be requiredfor important matters such as making changes to our memorandum and articles of association.General Meetings and Shareholder ProposalsAs a Cayman Islands exempted company, we are not obliged by the Companies Act to call shareholders’ annual general meetings. Our Eighth Amended andRestated Memorandum and Articles of Association provide that we may (but are not obliged to) in each year hold a general meeting as our annual general meeting inwhich case we will specify the meeting as such in the notices calling it, and the annual general meeting will be held at such time and place as may be determined by ourdirectors. We, however, will hold an annual shareholders’ meeting during each fiscal year, as required by the New York Stock Exchange Listed Company Manual.119Table of ContentsCayman Islands law provides shareholders with only limited rights to requisition a general meeting, and does not provide shareholders with any right to putany proposal before a general meeting. However, these rights may be provided in a company’s articles of association. Our Eighth Amended and RestatedMemorandum and Articles of Association allow shareholders holding shares representing in aggregate not less than one-third of all votes attaching to the issued andoutstanding shares of our company entitled to vote at general meetings to requisition a special meeting of the shareholders, in which case the directors are obliged tocall such meeting and to put the resolutions so requisitioned to a vote at such meeting; however, our Eighth Amended and Restated Memorandum and Articles ofAssociation do not provide our shareholders with any right to put any proposals before annual general meetings or extraordinary general meetings not called by suchshareholders.A quorum required for a meeting of shareholders consists of one or more shareholders holding, in aggregate, not less than 40% of the votes attaching to allissued and outstanding shares of our company present in person or by proxy or, if a corporation or other non-natural person, by its duly authorized representative.Advance notice of at least seven calendar days is required for the convening of our annual general meeting and other shareholders meetings.Transfer of Ordinary SharesSubject to the restrictions in our Eighth Amended and Restated Memorandum and Articles of Association as set out below, any of our shareholders maytransfer all or any of his or her ordinary shares by an instrument of transfer in the usual or common form or any other form approved by our board.Our board of directors may, in its absolute discretion, decline to register any transfer of any ordinary share which is not fully paid up or on which we have alien. Our directors may also, but is not required to, decline to register any transfer of any ordinary share unless:●the instrument of transfer is lodged with us, accompanied by the certificate for the ordinary shares to which it relates and such other evidence as ourboard of directors may reasonably require to show the right of the transferor to make the transfer;●the instrument of transfer is in respect of only one class of shares;●the instrument of transfer is properly stamped, if required;●in the case of a transfer to joint holders, the number of joint holders to whom the ordinary share is to be transferred does not exceed four; or●the ordinary shares transferred are free of any lien in favor of us; or●a fee of such maximum sum as the New York Stock Exchange may determine to be payable, or such lesser sum as the board of directors may from time totime require, is paid to us in respect thereof.If our directors refuse to register a transfer they are obligated to, within three months after the date on which the instrument of transfer was lodged, send toeach of the transferor and the transferee notice of such refusal. The registration of transfers of shares or of any class of shares may, after compliance with any noticerequirement of the designated stock exchange, be suspended at such times and for such periods (not exceeding in the whole thirty (30) days in any year) as our boardof directors may determine.Issuance of Additional SharesOur Eighth Amended and Restated Memorandum and Articles of Association authorizes our board of directors to issue additional ordinary shares from timeto time as our board of directors shall determine, to the extent of available authorized but unissued shares. Our Eighth Amended and Restated Memorandum andArticles of Association also authorize our board of directors to establish from time to time one or more series of preference shares and to determine, with respect toany series of preference shares, the terms and rights of that series, including:120Table of Contents●the designation of the series;●the number of shares of the series;●the dividend rights, dividend rates, conversion rights, voting rights; and●the rights and terms of redemption and liquidation preferences.Our board of directors may issue preference shares without further action by our shareholders to the extent authorized but unissued (other than issueadditional supervoting shares which will require the consent of holders of not less than 80% of the issued and outstanding Class B ordinary shares). Issuance ofthese shares may dilute the voting power of holders of ordinary shares.LiquidationOn the winding up of our company, if the assets available for distribution amongst our shareholders shall be more than sufficient to repay the whole of theshare capital at the commencement of the winding up, the surplus shall be distributed amongst our shareholders in proportion to the par value of the shares held bythem at the commencement of the winding up, subject to a deduction from those shares in respect of which there are monies due, of all monies payable to ourcompany for unpaid calls or otherwise. If our assets available for distribution are insufficient to repay all of the paid-up capital, the assets will be distributed so thatthe losses are borne by our shareholders in proportion to the par value of the shares held by them. We are a “limited liability” company registered under theCompanies Act, and under the Companies Act, the liability of our members is limited to the amount, if any, unpaid on the shares respectively held by them. Our EighthAmended and Restated Memorandum of Association contains a declaration that the liability of our members is so limited.Calls on Ordinary Shares and Forfeiture of Ordinary SharesOur board of directors may from time to time make calls upon shareholders for any amounts unpaid on their ordinary shares in a notice served to suchshareholders at least fourteen calendar days prior to the specified time and place of payment. The ordinary shares that have been called upon and remain unpaid onthe specified time are subject to forfeiture.Redemption, Repurchase and Surrender of Ordinary SharesWe may issue shares on terms that such shares are subject to redemption, at our option or at the option of the holders thereof, on such terms and in suchmanner as may be determined, before the issue of such shares, by our board of directors. Our company may also repurchase any of our shares provided that themanner and terms of such purchase have been approved by our board of directors or are otherwise authorized by our Eighth Amended and Restated Memorandumand Articles of Association. Under the Companies Act, the redemption or repurchase of any share may be paid out of our company’s profits or out of the proceeds ofa fresh issue of shares made for the purpose of such redemption or repurchase, or out of capital (including share premium account and capital redemption reserve) ifthe company can, immediately following such payment, pay its debts as they fall due in the ordinary course of business. In addition, under the Companies Act nosuch share may be redeemed or repurchased (a) unless it is fully paid up, (b) if such redemption or repurchase would result in there being no shares outstanding, or (c)if the company has commenced liquidation. In addition, our company may accept the surrender of any fully paid share for no consideration.Variations of Rights of SharesThe rights attached to our Class B ordinary shares may be varied only when at least 80% of the issued and outstanding Class B ordinary shares providewritten consent or at a separate meeting pass a resolution by holders of not less than 80% of the issued and outstanding Class B ordinary shares to sanction suchvariation. The rights attached to any other class of shares may, unless otherwise provided by the terms of issue of the shares of or the rights attaching to that class,be materially adversely varied only with the written consent of the holders of a majority of the issued shares of that class or with the sanction of an ordinaryresolution passed at a separate meeting of the holders of the shares of that class.121Table of ContentsInspection of Books and RecordsHolders of our ordinary shares will have no general right under Cayman Islands law to inspect or obtain copies of our list of shareholders or our corporaterecords. However, we will provide our shareholders with annual audited financial statements. See “—H. Documents on Display.”Changes in CapitalOur shareholders may from time to time by ordinary resolutions:●increase the share capital by such sum, to be divided into shares of such classes and amount, as the resolution prescribes;●consolidate and divide all or any of our share capital into shares of a larger amount than our existing shares;●convert all or any of its paid-up shares into stock and reconvert the stock into paid-up shares of any denomination;●sub-divide our existing shares, or any of them into shares of a smaller amount than that fixed by our Eighth Amended and Restated Memorandum ofAssociation; provided that in the subdivision the proportion between the amount paid and the amount, if any, unpaid on each reduced share will be thesame as it was in case of the share from which the reduced share is derived; and●cancel any shares which, at the date of the passing of the resolution, have not been taken or agreed to be taken by any person and diminish the amountof our share capital by the amount of the shares so canceled.Our shareholders may by special resolution, subject to confirmation by the Grand Court of the Cayman Islands on an application by our company for anorder confirming such reduction, reduce our share capital and any capital redemption reserve in any manner authorized by law.Special ApprovalsOur Eighth Amended and Restated Memorandum and Articles of Association provide that any amendment of any terms of Class B ordinary shares, anychange of control of our company upon merger or consolidation, scheme of arrangement or other similar transactions, the sale or exclusive license of all orsubstantially all of our intellectual property, or any issuance of shares carrying more than one vote per share, shall require the separate approval of at least 80% of theissued and outstanding Class B ordinary shares.C.Material ContractsWe have not entered into any material contracts other than in the ordinary course of business and other than those described in this annual report.D.Exchange ControlsThe Cayman Islands currently has no exchange control regulations or currency restrictions. See “Item 4. Information on the Company—B. BusinessOverview—Regulation” for exchange control and currency restrictions in Indonesia, Taiwan, Vietnam, Thailand and Singapore.122Table of ContentsE.TaxationThe following discussion is a summary of Cayman Islands, Singapore and U.S. federal income tax considerations of an investment in our ADSs or ordinaryshares is based upon laws and relevant interpretations thereof in effect as of the date of this annual report, all of which are subject to change. This summary does notdeal with all possible tax considerations relating to an investment in our ADSs or ordinary shares, such as the tax considerations under state, local and other tax laws,or tax laws of jurisdictions other than the Cayman Islands, Singapore and the United States. To the extent that the discussion relates to matters of Cayman Islands taxlaw, it represents the opinion of Maples and Calder (Hong Kong) LLP, our counsel as to Cayman Islands law. To the extent that the discussion relates to matters ofSingapore tax law, it represents the opinion of Rajah & Tann Singapore LLP, our counsel as to Singapore law.Cayman Islands TaxationThe Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in thenature of inheritance tax or estate duty. There are no other taxes likely to be material to us levied by the government of the Cayman Islands except for stamp dutieswhich may be applicable on instruments executed in, or brought within, the jurisdiction of the Cayman Islands. The Cayman Islands is not party to any double taxtreaties which are applicable to any payments made by or to our company. There are no exchange control regulations or currency restrictions in the Cayman Islands.Payments of dividends and capital in respect of our ordinary shares or our ADSs will not be subject to taxation in the Cayman Islands and no withholdingwill be required on the payment of a dividend or capital to any holder of our ordinary shares or our ADSs, nor will gains derived from the disposal of our ordinaryshares or our ADSs be subject to Cayman Islands income or corporation tax.No stamp duty is payable in respect of the issue of our ordinary shares or on an instrument of transfer in respect of our ordinary shares.Singapore TaxationThe following discussion is a summary of Singapore income tax, goods and services tax and stamp duty considerations relevant to the acquisition,ownership and disposition of ADSs or our ordinary shares. The statements made herein regarding taxation are general in nature and based upon certain aspects of thecurrent tax laws of Singapore and administrative guidelines issued by the relevant authorities in force as of the date hereof and are subject to any changes in suchlaws or administrative guidelines or the interpretation of such laws or guidelines occurring after such date, which changes could be made on a retrospective basis. Thestatements made herein do not purport to be a comprehensive or exhaustive description of all of the tax considerations that may be relevant to a decision to acquire,own or dispose of our ADSs or our ordinary shares and do not purport to deal with the tax consequences applicable to all categories of investors, some of which(such as dealers in securities) may be subject to special rules. Prospective shareholders are advised to consult their own tax advisers as to the Singapore or other taxconsequences of the acquisition, ownership of or disposal of our ADSs and our ordinary shares, taking into account their own particular circumstances. It isemphasized that neither we nor any other persons involved in this annual report accept responsibility for any tax effects or liabilities resulting from the acquisition,holding or disposal of our ADSs or our ordinary shares.Income TaxUnder the Singapore Income Tax Act (Chapter 134 of Singapore), a company established outside Singapore but whose governing body, being the board ofdirectors, usually exercises de facto control and management of its business in Singapore could be considered tax residents in Singapore. However, such control andmanagement of the business should not be deemed to be in Singapore if physical board meetings are mainly conducted outside Singapore. Where board resolutionsare passed in the form of written consent signed by the directors each acting in their own jurisdictions, or where the board meetings are held by teleconference orvideoconference, it is possible that the place of de facto control and management will be considered to be where the majority of the board are located when they signsuch consent or attend such conferences.We believe that Sea Limited is not a Singapore tax resident for Singapore income tax purposes. However, the tax resident status of Sea Limited is subject todetermination by the IRAS and uncertainties remain with respect to our tax residence status. It is not certain if Sea Limited will be classified as a Singapore tax resident.See “Item 3. Key Information—D. Risk Factors—Markets Related Risks” for a discussion of the Singapore tax consequences to non-resident investors if Sea Limitedis deemed to be a Singapore tax resident. The statements below are based on the assumption that Sea Limited is not a tax resident in Singapore for Singapore incometax purposes.123Table of ContentsDividends With Respect to Our ADSs or Our Ordinary SharesWhere Sea Limited is not considered a tax resident in Singapore for Singapore income tax purposes, the dividend payments made by Sea Limited would beconsidered sourced outside Singapore (unless our ADSs or our ordinary shares are held as part of a trade or business carried out in Singapore, in which case theholders of our ADSs or our ordinary shares may be taxed on the dividends distributed to them). Foreign-sourced dividends received or deemed to be received inSingapore by non-resident individuals are exempt from Singapore income tax. This exemption also applies to Singapore tax resident individuals who have received or,are deemed to have received his foreign-sourced income in Singapore on or after January 1, 2004 (except where such income is received through a partnership inSingapore).Foreign-sourced dividends received or deemed to be received in Singapore by corporate investors who do not have a business presence in Singapore, arenot tax resident in Singapore, and who do not have a permanent establishment or tax presence in Singapore, will generally not be subject to income tax in Singapore.Foreign-sourced dividends received or deemed to be received in Singapore by corporate investors who are tax residents in Singapore will generally be subject toSingapore income tax. Since Sea Limited is a company incorporated in the Cayman Islands, and the prevailing rate of tax in the Cayman Islands, being a tax of a similarcharacter to the Singapore income tax, is 0%, dividends received in Singapore by resident corporate investors would be subject to Singapore income tax at theprevailing rate of 17%.Dividends received in respect of our ADSs or our ordinary shares whether by a Singapore tax resident or a non-Singapore tax resident as a shareholder arenot subject to any withholding tax in Singapore.Gains With Respect to Disposition of Our ADSs or Our Ordinary SharesThere is no capital gain tax in Singapore and there is no specific law or regulation in Singapore dealing with the characterization of a gain as income or capitalin nature. Gains arising from disposition of our ADSs or our ordinary shares may be construed as income and subject to Singapore income tax if they arise from or areotherwise connected with a trade or business activity in Singapore. Factors that determine the existence of a trade include, inter alia, the length of ownership, thefrequency of similar transactions, and the motive of acquisition.Such gains may also be considered income in nature, even if they do not arise from an activity in the ordinary course of trade or business or an ordinaryincident of some other business activity, if our ADSs or our ordinary shares were purchased with the intention or purpose of making a profit by sale rather thanholding for long-term investment purposes in Singapore. Conversely, gains from disposition of our ADSs or our ordinary shares in Singapore, if considered as capitalgains rather than income by the Inland Revenue Authority of Singapore, are not taxable in Singapore.For corporate shareholders who are subject to Singapore income tax treatment under Section 34A or 34AA of the Income Tax Act (Chapter 134 of Singapore)in relation to the adoption of Singapore Financial Reporting Standard 39—Financial Instruments: Recognition and Measurement (FRS 39) or Singapore FinancialReporting Standard 109—Financial Instruments (FRS 109), for accounting purposes, they may be required to recognize gains or losses (not being gains or losses inthe nature of capital) even though no sale or disposal of our ADSs or our ordinary shares has been made. Our corporate shareholders who may be subject to suchprovisions should consult their own accounting and tax advisers regarding the Singapore income tax consequences of their acquisition, ownership and disposition ofour ADSs and our ordinary shares arising from the adoption of FRS 39 or FRS 109.Notwithstanding the above, foreign investors may claim that the gains from disposition of their ADSs or ordinary shares are not sourced or received inSingapore (so that such gains will not be subject to Singapore income tax) if (i) the foreign investor is not a tax resident in Singapore, (ii) the foreign investor does notmaintain a permanent establishment in Singapore, to which the disposition gains may be effectively connected, and (iii) the entire process (including the negotiation,deliberation, execution of the acquisition and sale, etc.) leading up to the actual acquisition and sale of our ADSs or our ordinary shares is performed outside ofSingapore.124Table of ContentsGoods and Services TaxThe issuance of our ADSs or our ordinary shares is not subject to Singapore goods and services tax (GST).The sale of our ADS or our ordinary shares by a GST-registered investor in Singapore to another person belonging in Singapore is an exempt supply (i.e. notsubject to GST). Any input GST (for example, GST on brokerage) incurred by the GST-registered investor in connection with the making of this exempt supply isgenerally not recoverable and will become an additional cost to the investor unless the investor satisfies certain conditions prescribed under the GST legislation orsatisfies certain GST concessions.Where our ADS or our ordinary shares are sold by a GST-registered investor in the course or furtherance of a business carried on by such an investor to aperson belonging outside Singapore (and who is outside Singapore at the time of supply), the sale is a taxable supply subject to GST at a zero rate (i.e. 0%). Any inputGST (for example, GST on brokerage) incurred by the GST-registered investor in making this zero-rated supply for the purpose of his business will, subject to theconditions prescribed under the GST legislation, be recoverable from the Comptroller of GST.Investors should seek their own tax advice on the recoverability of GST incurred on expenses in connection with the purchase and sale of our ADSs or ourordinary shares.Services such as brokerage and handling services rendered by a GST-registered person to an investor belonging in Singapore in connection with theinvestor’s purchase or sale of our ADSs or our ordinary shares will be subject to GST at the prevailing rate (currently at 7%). Similar services rendered contractually toan investor belonging outside Singapore should, subject to certain conditions prescribed under the GST legislation, qualify for GST at zero rate (i.e. 0%).Stamp DutyNo stamp duty is payable on the subscription and issuance of our ADSs or our ordinary shares. As Sea Limited is incorporated in the Cayman Islands andour ADSs and our ordinary shares are not registered in any register kept in Singapore, no stamp duty is payable in Singapore on any instrument of transfer upon asale or gift of our ADSs or our ordinary shares. This position would remain as long as Sea Limited is not considered a residential property-holding entity.United States Federal Income Tax ConsiderationsThe following discussion is a summary of U.S. federal income tax considerations generally applicable to the ownership and disposition of the ADSs ownedby U.S. Holders (as defined below) and to the underlying ordinary shares. This discussion applies only to U.S. Holders that hold the ADSs or ordinary shares ascapital assets (generally, property held for investment). This discussion is based on the U.S. Internal Revenue Code of 1986, as amended (the “Code”), U.S. Treasuryregulations promulgated thereunder (“Regulations”), published positions of the Internal Revenue Service (the “IRS”), court decisions and other applicable authorities,all as of the date hereof and all of which are subject to change or differing interpretations (possibly with retroactive effect).This discussion does not address all U.S. federal income tax considerations that may be applicable to U.S. Holders in light of their particular circumstances orU.S. Holders subject to special treatment under U.S. federal income tax law, such as:●banks, insurance companies and other financial institutions;●entities treated as partnerships for U.S. federal income tax purposes, S corporations or other pass-through entities;●tax-exempt entities;●real estate investment trusts;125Table of Contents●regulated investment companies;●brokers, dealers, traders in securities that elect to use a mark-to-market method of accounting;●certain former citizens or residents of the United States;●persons that elect to mark their securities to market;●persons who hold ADSs or ordinary shares as part of a hedging, integrated, straddle, conversion or constructive sale transaction for U.S. federal incometax purposes;●persons that have a functional currency other than the U.S. dollar; and●persons that actually or constructively own 10% or more of our stock by vote or value.This discussion does not address any U.S. state or local or non-U.S. tax considerations or any U.S. federal estate, gift, alternative minimum tax or Medicarecontribution tax considerations.For purposes of this discussion, a “U.S. Holder” is a beneficial owner of the ADSs or ordinary shares that is for U.S. federal income tax purposes:●an individual who is a citizen or resident of the United States;●a corporation (including any entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the UnitedStates or any state thereof or the District of Columbia;●an estate whose income is subject to U.S. federal income taxation regardless of its source; or●a trust, (i) the administration of which is subject to the primary supervision of a court within the United States and for which one or more U.S. personshave the authority to control all substantial decisions, or (ii) that has a valid election in effect under applicable U.S. Treasury Regulations to be treated asa U.S. person.If a partnership or other entity treated as a partnership for U.S. federal income tax purposes holds the ADSs or ordinary shares, the tax treatment of a partnerwill generally depend on the status and the activities of the partnership. Partners in a partnership holding the ADSs or ordinary shares should consult their taxadvisors regarding the tax considerations of an investment in the ADSs or ordinary shares.The discussion below assumes that the representations contained in the deposit agreement are true and that the obligations in the deposit agreement andany related agreement have been and will be complied with in accordance with their terms.If a U.S. Holder holds ADSs, such holder will generally be treated as owning the underlying ordinary shares represented by those ADSs for U.S. federalincome tax purposes.DividendsSubject to the discussion below under “—Passive Foreign Investment Company Rules,” the gross amount of any distribution to a U.S. Holder with respectto the ADSs or ordinary shares will generally be included in such holder’s gross income as ordinary dividend income on the date actually or constructively receivedby such holder, in the case of ordinary shares, or by the depositary, in the case of ADSs, to the extent that the distribution is paid out of our current or accumulatedearnings and profits (as determined under U.S. federal income tax principles). We do not intend to calculate our earnings and profits under U.S. federal income taxprinciples. Therefore, U.S. Holders should expect that any distribution from us will generally be reported as a dividend. The amount of such dividend will includeamounts withheld by us or our paying agent in respect of any foreign taxes. Any dividend from us will not be eligible for the dividends-received deduction generallyallowed to corporations in respect of dividends received from U.S. corporations.126Table of ContentsThe amount of any dividend paid in foreign currency will equal the U.S. dollar value of the foreign currency received calculated by reference to the exchangerate in effect on the date the dividend is received by a U.S. Holder, in the case of ordinary shares, or by the depositary in the case of ADSs, regardless of whether theforeign currency is converted into U.S. dollars. If the foreign currency received as a dividend is converted into U.S. dollars on the date it is received, a U.S. Holder willgenerally not be required to recognize foreign currency gain or loss in respect of the dividend income. If the foreign currency received as a dividend is not convertedinto U.S. dollars on the date of receipt, a U.S. Holder will have a basis in the foreign currency equal to its U.S. dollar value on the date of receipt. Any gain or lossrealized on a subsequent conversion or other disposition of the foreign currency will be treated as U.S. source ordinary income or loss.With respect to individuals and certain other non-corporate U.S. Holders, dividends may constitute “qualified dividend income” that is subject to tax at thelower applicable capital gains rates provided that (1) the ADSs or ordinary shares on which the dividends are paid are readily tradable on an established securitiesmarket in the United States, (2) we are not a PFIC for either our taxable year in which the dividend was paid or the preceding taxable year, and (3) certain holding periodand other requirements are met. The ADSs, but not our ordinary shares, are listed on the NYSE so we anticipate that the ADSs should qualify as readily tradable on anestablished securities market in the United States, although there can be no assurances in this regard. U.S. Holders should consult their tax advisors regarding theavailability of the lower capital gains rate applicable to qualified dividend income for dividends paid with respect to the ADSs.Dividends from us will constitute non-U.S. source income and be treated as “passive category income” for foreign tax credit limitation purposes. U.S. Holdersmay be eligible, subject to a number of complex limitations, to claim a foreign tax credit in respect of any nonrefundable foreign withholding tax imposed on dividendsreceived on the ADSs or ordinary shares. If a U.S. Holder does not elect to claim a foreign tax credit for foreign taxes withheld, such holder may instead claim adeduction for U.S. federal income tax purposes in respect of such taxes, but only for a year in which such holder elects to do so for all creditable foreign income taxes.U.S. Holders should consult their tax advisors regarding the availability of the foreign tax credit under their particular circumstances.Sale or Other Disposition of ADSs or Ordinary SharesSubject to the discussion below under “—Passive Foreign Investment Company Rules,” a U.S. Holder will generally recognize gain or loss on any sale orother disposition of the ADSs or ordinary shares equal to the difference between the amount realized with respect to such ADSs or ordinary shares and such holder’stax basis in such ADSs or ordinary shares. Such gain or loss will generally be capital gain or loss. Individuals and certain other non-corporate U.S. Holders who haveheld such ADSs or ordinary shares for more than one year will generally be eligible for reduced tax rates. The deductibility of capital losses is subject to limitations.Any such gain or loss recognized by a U.S. Holder will generally be treated as U.S.-source gain or loss for foreign tax credit limitation purposes.Passive Foreign Investment Company RulesA non-U.S. corporation, such as our company, will be classified as a PFIC for U.S. federal income tax purposes for any taxable year, if either (i) 75% or more ofits gross income for such year consists of certain types of “passive” income or (ii) 50% or more of the value of its assets (generally determined on the basis of aquarterly average) during such year produce or are held for the production of passive income. Passive income generally includes dividends, interest, royalties, rents,annuities, net gains from the sale or exchange of property producing such income and net foreign currency gains. For this purpose, cash is generally categorized as apassive asset and the company’s unbooked intangibles associated with active business activity are taken into account as a non-passive asset. We will be treated asowning our proportionate share of the assets and earning our proportionate share of the income of any other corporation in which we own (or are deemed to own),directly, indirectly or constructively, 25% or more (by value) of the stock.Although the law in this regard is not entirely clear, we treat our VIEs as being owned by us for U.S. federal income tax purposes because we are entitled tosubstantially all of their economic benefits and, as a result, we consolidate their results of operations in our consolidated U.S. GAAP financial statements. If it weredetermined, however, that we are not the owner of our VIEs for U.S. federal income tax purposes, the composition of our income and assets would change and wewould likely be treated as a PFIC for our current taxable year and any subsequent taxable year.127Table of ContentsAssuming that we are the owner of our VIEs for U.S. federal income tax purposes, based on our income and assets, and the value of the ADSs, we do notbelieve that we were a PFIC, for U.S. federal income tax purposes, for the taxable year ended December 31, 2020, and do not anticipate becoming a PFIC for the currenttaxable year or for the foreseeable future. Nevertheless, because PFIC status is a factual determination made annually after the close of each taxable year on the basisof the composition of our income and assets, there can be no assurance that we will not be a PFIC for the current taxable year or any future taxable year. Undercircumstances where revenues from activities that produce passive income significantly increase relative to our revenues from activities that produce non-passiveincome, or where we determine not to deploy significant amounts of cash, our risk of becoming classified as a PFIC may substantially increase. In addition, becausewe have valued our goodwill based on the market value of the ADSs, a decrease in the market value of the ADSs may also result in our becoming a PFIC.If we are a PFIC for any taxable year during which a U.S. Holder holds the ADSs or ordinary shares, such holder will be subject to special tax rules withrespect to any “excess distribution” that such holder receives on the ADSs or ordinary shares and any gain such holder realizes from a sale or other disposition(including a pledge) of the ADSs or ordinary shares, unless such holder makes a “mark-to-market” election as discussed below. Distributions received by a U.S.Holder in a taxable year that are greater than 125% of the average annual distributions such holder received during the shorter of the three preceding taxable years orsuch holder’s holding period for the ADSs or ordinary shares will be treated as an excess distribution. Under these special tax rules:●the excess distribution or gain will be allocated ratably over the U.S. Holder’s holding period for the ADSs or ordinary shares;●amounts allocated to the current taxable year and any taxable years in the U.S. Holder’s holding period prior to the first taxable year in which we areclassified as a PFIC (a “pre-PFIC year”) will be subject to tax as ordinary income; and●amounts allocated to each prior taxable year, other than the current taxable year or a pre-PFIC year, will be subject to tax at the highest tax rate in effectapplicable to the U.S. Holder for that year, and such amounts will be increased by an additional tax equal to interest on the resulting tax deemed deferredwith respect to such years.If we are a PFIC for any taxable year during which a U.S. Holder holds ADSs or ordinary shares and any of our non-U.S. affiliated entities are also PFICs,such holder will be treated as owning a proportionate amount (by value) of the shares of each such non-U.S. affiliate classified as a PFIC for purposes of theapplication of these rules.Alternatively, a U.S. Holder of “marketable stock” (as defined below) in a PFIC may make a mark-to-market election for such stock of a PFIC to elect out of thetax treatment discussed in the second preceding paragraph. If a U.S. Holder makes a valid mark-to-market election for the ADSs, the U.S. Holder will include in incomeeach year an amount equal to the excess, if any, of the fair market value of the ADSs as of the close of such holder’s taxable year over such holder’s adjusted basis insuch ADSs. The U.S. Holder is allowed a deduction for the excess, if any, of such holder’s adjusted basis in the ADSs over their fair market value as of the close of thetaxable year. Deductions are allowable however, only to the extent of any net mark-to-market gains on the ADSs included in the U.S. Holder’s income for prior taxableyears. Amounts included in the U.S. Holder’s income under a mark-to-market election, as well as gain on the actual sale or other disposition of the ADSs, are treatedas ordinary income. Ordinary loss treatment also applies to the deductible portion of any mark-to-market loss on the ADSs, as well as to any loss realized on the actualsale or disposition of the ADSs, to the extent that the amount of such loss does not exceed the net mark-to-market gains previously included in income with respect tosuch ADSs. The U.S. Holder’s basis in the ADSs will be adjusted to reflect any such income or loss amounts. If a U.S. Holder makes such a mark-to-market election,tax rules that apply to distributions by corporations which are not PFICs would apply to distributions by us (except that the lower applicable capital gains rate forqualified dividend income would not apply). If a U.S. Holder makes a valid mark-to-market election, and we subsequently cease to be classified as a PFIC, such U.S.Holder will not be required to take into account the mark-to-market income or loss described above during any period that we are not classified as a PFIC.128Table of ContentsThe mark-to-market election is available only for “marketable stock” which is stock that is traded in other than de minimis quantities on at least 15 daysduring each calendar quarter (“regularly traded”) on a qualified exchange or other market, as defined in applicable Regulations. We expect that the ADSs will continueto be listed on the NYSE, which is a qualified exchange for these purposes, and, consequently, assuming that the ADSs are regularly traded, if a U.S. Holder holds theADSs, it is expected that the mark-to-market election would be available to such holder were we to become a PFIC. A mark-to-market election may not, however, bemade with respect to the ordinary shares, as they are not marketable stock. Accordingly, if we are a PFIC during any year in which a U.S. Holder holds ordinary shares,such holder will generally be subject to the special tax rules discussed above.In addition, because, as a technical matter, a mark-to-market election cannot be made for any lower-tier PFICs that we may own, a U.S. Holder may continue tobe subject to the PFIC rules with respect to such holder’s indirect interest in any investments held by us that are treated as an equity interest in a PFIC for U.S. federalincome tax purposes.We do not intend to provide information necessary for U.S. Holders to make qualified electing fund elections, which, if available, would result in tax treatmentdifferent from the general tax treatment for PFICs described above.If a U.S. Holder owns the ADSs or ordinary shares during any taxable year that we are a PFIC, such holder must generally file an annual report with the IRSregarding their ownership of the ADSs or ordinary shares. U.S. Holders should consult their tax advisors concerning the U.S. federal income tax considerations ofholding and disposing of the ADSs or ordinary shares if we are or become a PFIC, including the availability and possibility of making a mark-to-market election.THE PRECEDING DISCUSSION OF U.S. FEDERAL INCOME TAX CONSIDERATIONS IS INTENDED FOR GENERAL INFORMATION ONLY ANDDOES NOT CONSTITUTE TAX ADVICE. U.S. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS AS TO THE U.S. FEDERAL, STATE, LOCAL AND NON-U.S. TAX CONSIDERATIONS TO THEM OF THE OWNERSHIP AND DISPOSITION OF THE ADSs AND ORDINARY SHARES IN THEIR PARTICULARCIRCUMSTANCES.F.Dividends and Paying AgentsNot applicable.G.Statement by ExpertsNot applicable.H.Documents on DisplayWe previously filed with the SEC registration statement on Form F-1 (File No. 333-220571), as amended, including the prospectus contained therein, togetherwith the post-effective registration statement on Form F-1 (File No. 333-221029) to register additional securities that become effective immediately upon filing, toregister our Class A ordinary shares in relation to our initial public offering. We also filed with the SEC related registration statement on Form F-6 (File No. 333-220861)to register our ADSs and registration statements on Form S-8 (File No. 333-222071, No. 333-223551, No. 333-229137, No. 333-232859, No. 333-235799 and No. 333-251873) to register our securities to be issued under our 2009 Plan.We are subject to the periodic reporting and other informational requirements of the Exchange Act as applicable to foreign private issuers. Under theExchange Act, we are required to file reports and other information with the SEC. Specifically, we are required to file annually a Form 20-F within four months after theend of each fiscal year. Copies of reports and other information, when so filed with the SEC, can be obtained from the SEC’s website at www.sec.gov. As a foreignprivate issuer, we are exempt from the rules of the Exchange Act prescribing the furnishing and content of quarterly reports and proxy statements, and our executiveofficers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. Inaddition, we are not required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. companieswhose securities are registered under the Exchange Act.129Table of ContentsWe will furnish The Bank of New York Mellon, the depositary of our ADSs, with our annual reports, which will include a review of operations and annualaudited consolidated financial statements prepared in conformity with U.S. GAAP, and all notices of shareholders’ meetings and other reports and communicationsthat are made generally available to our shareholders. The depositary will make such notices, reports and communications available to holders of ADSs and, upon ourrequest, will mail to all record holders of ADSs the information contained in any notice of a shareholders’ meeting received by the depositary from us.I.Subsidiary InformationNot applicable.ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKForeign Exchange RiskForeign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign exchange rates. Ourexposure to the risk of changes in foreign exchange rates relates primarily to our operating activities when revenue or expense is denominated in a foreign currencyand our net investments in foreign subsidiaries. We have transactional currency exposures arising from sales or cost of revenue that are denominated in a currencyother than the respective functional currencies of our subsidiaries, primarily Indonesian rupiah, New Taiwan dollar, Thai baht, Singapore dollar, Malaysian ringgit,Vietnamese dong and Brazilian real. The foreign currencies in which these transactions are denominated are mainly U.S. dollar. Our sales and costs are denominated inthe respective functional currencies of our subsidiaries. Our trade receivable and trade payable balances at the end of the reporting period have similar exposures.Such amounts include balances within the subsidiaries which, although eliminated from the consolidated balance sheets, will continue to contribute to foreignexchange risk exposures in the consolidated statements of operations and consolidated statements of comprehensive loss.Foreign currency exchange rates for currencies in some of our markets have experienced substantial volatility. It is difficult to predict how market forces or thegovernment policies in those markets may impact the exchange rates against the U.S. dollar in the future. See “Item 3. Key Information—D. Risk Factors—Businessand Operational Related Risks—Risks Applicable Across Multiple Businesses—Fluctuations in foreign currency exchange rates may adversely affect our operationaland financial results, which we report in U.S. dollars.”As of December 31, 2020, we had cash, cash equivalents and restricted cash of US$7,053.4 million. We had U.S. dollar-denominated cash, cash equivalentsand restricted cash of US$5,355.1 million, Singapore dollar-denominated cash, cash equivalents and restricted cash of US$549.2 million, Indonesian rupiah-denominated cash, cash equivalents and restricted cash of US$282.1 million, Malaysian ringgit-denominated cash, cash equivalents and restricted cash of US$211.6million, and cash, cash equivalents and restricted cash denominated in other currencies of US$655.4 million. If the U.S. dollar had strengthened or weakened by 100basis points against Singapore dollar, our cash, cash equivalents and restricted cash would have decreased or increased by US$5.5 million. If the U.S. dollar hadstrengthened or weakened by 100 basis points against Indonesian rupiah, our cash, cash equivalents and restricted cash would have decreased or increased byUS$2.8 million. If the U.S. dollar had strengthened or weakened by 100 basis points against Malaysian ringgit, our cash, cash equivalents and restricted cash wouldhave decreased or increased by US$2.1 million. If the U.S. dollar had strengthened or weakened by 100 basis points against each of the other currencies in which weheld cash, cash equivalents and restricted cash, our cash, cash equivalents and restricted cash would have decreased or increased by US$6.6 million.Credit RiskWe are exposed to credit risk from our operating activities (primarily from trade and other receivables) and from our financing activities, including depositswith banks and financial institutions, foreign exchange transactions and other financial instruments. Our objective is to seek continual revenue growth whileminimizing losses incurred due to increased credit risk exposure. Financial instruments that potentially subject us to significant concentrations of credit risk consistprimarily of cash and cash equivalents, restricted cash, accounts receivable, other receivables, loans receivable, held to maturity investments, available-for-saleinvestments, and amounts due from related parties. As of December 31, 2020, substantially all of our cash and cash equivalents were held at major financialinstitutions in the respective locations of our region. We believe that these financial institutions are of high credit quality and continually monitor the creditworthiness of these financial institutions.Inflation RiskThe majority of our revenue was generated in Indonesia, Taiwan, Vietnam, Thailand, Malaysia and the Philippines in 2020. Inflation did not have a materialimpact on our results of operations.130Table of ContentsITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIESA.Debt SecuritiesNot applicable.B.Warrants and RightsNot applicable.C.Other SecuritiesNot applicable.D.American Depositary SharesFees and Charges Our ADS Holders May Have to PayOur ADSs, each of which represents one Class A ordinary share, are listed on the New York Stock Exchange. The Bank of New York Mellon is the depositaryof our ADS program. A holder of ADSs may have to pay certain fees of The Bank of New York Mellon, as depositary, and certain taxes, registration and transfercharges and fees and governmental charges and fees. The depositary collects fees for delivery and surrender of ADSs directly from holders depositing shares orsurrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to holders by deductingthose fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositaryservices by deduction from cash distributions or by directly billing holders or by charging the book-entry system accounts of participants acting for them. Thedepositary may collect any fees by deduction from any cash distribution payable (or by selling a portion of securities or other property distributable) to ADS holdersthat are obligated to pay those fees. The depositary may generally refuse to deliver ADSs or deposited shares or to forward any distributions until its fees for thoseservices are paid.From time to time, the depositary may make payments to us to reimburse us for costs and expenses generally arising out of establishment and maintenance ofthe ADS program, waive fees and expenses for services provided to us by the depositary or share revenue from the fees collected from ADS holders. In performing itsduties under the deposit agreement, the depositary may use brokers, dealers, foreign currency dealers or other service providers that are owned by or affiliated withthe depositary and that may earn or share fees, spreads or commissions.Persons depositing or withdrawing sharesor holders of ADSs must pay:For: US$5.00 (or less) per 100 ADSs (or portion thereof)Issuance of ADSs, including issuances resulting from a distribution of shares orrights or other property Cancelation of ADSs for the purpose of withdrawal, including if the depositagreement terminates US$.05 (or less) per ADS (or portion thereof)Any cash distribution to ADS holders A fee equivalent to the fee that would be payable if securities distributed to youhad been shares and the shares had been deposited for issuance of ADSsDistribution of securities distributed to holders of deposited securities(including rights) that are distributed by the depositary to ADS holders US$.05 (or less) per ADS (or portion thereof) per annumDepositary services Registration or transfer feesTransfer and registration of shares on our share register to or from the name ofthe depositary or its agent when you deposit or withdraw shares Expenses of the depositaryCable, telex and facsimile transmissions (when expressly provided in the depositagreement) Converting foreign currency to U.S. dollars Taxes and other governmental charges the depositary or the custodian has topay on any ADS or shares underlying ADSs, such as stock transfer taxes, stampduty or withholding taxesAs necessary Any charges incurred by the depositary or its agents for servicing the depositedsecuritiesAs necessary131Table of ContentsPART IIITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIESNone.ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDSSee “Item 10. Additional Information” for a description of the rights of shareholders, which remain unchanged.ITEM 15.CONTROLS AND PROCEDURESDisclosure Controls and ProceduresThe Company maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, asamended (the “Exchange Act”)) that are designed to ensure that required information is recorded, processed, summarized and reported within the required timeframe,as specified in the rules set forth by the Securities and Exchange Commission (“SEC”). Our disclosure controls and procedures are also designed to ensure thatinformation required to be disclosed is accumulated and communicated to management, including the Group Chief Executive Officer and Group Chief Financial Officer,to allow timely decisions regarding required disclosures.Our management, with the participation of our Group Chief Executive Officer and Group Chief Financial Officer, evaluated the effectiveness of our disclosurecontrols and procedures as of December 31, 2020. While there are inherent limitations to the effectiveness of any system of disclosure controls and procedures,including the possibility of human error and the circumvention or overriding of the controls and procedures, the Company’s disclosure controls, and procedure aredesigned to provide reasonable assurance of achieving their objectives. Based on this evaluation, our Group Chief Executive Officer and Group Chief Financial Officerhave concluded that our disclosure controls and procedures were effective as of December 31, 2020.132Table of ContentsManagement’s Annual Report on Internal Control over Financial ReportingManagement is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f)under the Securities Exchange Act of 1934. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financialstatements would be prevented or detected. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls maybecome inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.Management conducted an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2020. In making thisassessment, management used the criteria set forth in the Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations ofthe Treadway Commission.Based on the results of this assessment and on those criteria, management concluded that our internal control over financial reporting was effective as ofDecember 31, 2020.Attestation Report of the Registered Public Accounting FirmThe effectiveness of the Company’s internal control over financial reporting as of December 31, 2020 has been audited by Ernst & Young LLP, anindependent registered public accounting firm, as stated in their report.Changes in Internal Control over Financial ReportingThere were no changes in our internal controls over financial reporting that occurred during the period covered by this annual report on Form 20-F that havematerially affected, or are reasonably likely to materially affect, our internal control over financial reporting.ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERTOur board of directors has also determined that Mr. David Heng Chen Seng, an independent director and a member of our audit committee, qualifies as an“audit committee financial expert” within the meaning of the SEC rules and possesses financial sophistication within the meaning of the New York Stock ExchangeListed Company Manual. Mr. David Heng Chen Seng satisfies the “independence” requirements of Section 303A of the New York Stock Exchange Listed CompanyManual and meets the independence standards under Rule 10A-3 under the Exchange Act.ITEM 16B.CODE OF ETHICSOur board of directors has adopted a code of business conduct and ethics that applies to all of our directors, officers, employees, including certainprovisions that specifically apply to our principal executive officer, principal financial officer, principal accounting officer or controller and any other persons whoperform similar functions for us. We have filed our code of business conduct and ethics as Exhibit 99.1 of our registration statement on Form F-1 (File No. 333-220571)filed with the SEC on September 22, 2017. A copy of our code of business conduct and ethics is available on our website at www.sea.com.133Table of ContentsITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICESThe following table sets forth the aggregate fees by categories specified below in connection with certain professional services rendered by Ernst & YoungLLP, our independent registered public accounting firm, for the periods indicated. We did not pay any other fees to our independent registered public accounting firmduring the periods indicated below. For the Year Ended December 31, 2019 2020 (US$ thousands) Audit fees(1) 2,700 3,676 Tax fees(2) 78 59 Audit related fees(3) 346 58 Other fees(4) — 803 (1)“Audit fees” means the aggregate fees billed for professional services rendered by our independent registered public accounting firm for the audit of ourannual financial statements. This category also included professional services rendered by our independent registered public accounting firm for statutoryaudits required by non-U.S. jurisdictions. In 2020, the audit refers to financial audit and audit pursuant to Section 404 of the Sarbanes-Oxley Act of 2002.(2)“Tax fees” means the aggregate fees billed for the tax services provided with respect to tax consulting and tax audit assistance.(3)“Audit-related fees” means the aggregate fees billed in each fiscal year listed for professional services rendered by our principal auditors related to the auditof our financial statements that are not reported under “audit fees.”(4)“Other fees” means the aggregate fees billed for transaction advisory services with respect to the review of our regulatory compliance and transaction duediligence.The policy of our audit committee is to pre-approve all audit and non-audit services provided by Ernst & Young LLP, our independent registered publicaccounting firm, including audit services, audit-related services and tax services as described above, other than those for de minimis services which are approved bythe audit committee prior to the completion of the audit.ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEESNot applicable.ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERSNone.ITEM 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANTNot applicable.ITEM 16G.CORPORATE GOVERNANCEWe are subject to the New York Stock Exchange corporate governance listing standards. However, New York Stock Exchange rules permit a foreign privateissuer like us to follow the corporate governance practices of its home country. Certain corporate governance practices in the Cayman Islands, which is our homecountry, may differ significantly from the New York Stock Exchange corporate governance listing standards.Section 303A.08 of the New York Stock Exchange Listed Company Manual requires a listed company to give shareholders an opportunity to vote on all equity-compensation plans and material revisions thereto. We are a Cayman Islands company, and there are no shareholder approval requirements for such matter. Pursuantto the exemption granted to foreign private issuers under Section 303A.00 of the New York Stock Exchange Listed Company Manual, we have followed our homecountry practice in lieu of the requirements of Sections 303A.08. In November 2017 and February 2018, we obtained approvals from our board of directors to increasethe maximum aggregate number of ordinary shares which may be issued pursuant to all awards under the 2009 Plan. In February 2018, our board of directors alsoapproved automatic annual increases in the number of shares that may be issued under the 2009 Plan on January 1 of each of 2019, 2020, 2021 and 2022. In July 2019,our board of directors approved a one-time increase of the maximum aggregate number of shares which may be issued pursuant to the 2009 Plan by 3 million and at thesame time reduced the same number of shares from the scheduled automatic increase of shares on January 1, 2020 pursuant to the aforesaid automatic annual increasemechanism. For additional information, see “Item 6. Directors, Senior Management and Employees—B. Compensation—Share Incentive Plan.”134Table of ContentsSection 303A.01 of the New York Stock Exchange Listed Company Manual requires a listed company to have a majority of independent directors, which isnot required under the Companies Act of the Cayman Islands. Currently, our board of directors is composed of six members, two of whom are independent directors asdescribed under “Item 6. Directors, Senior Management and Employees—C. Board Practice.”We follow home country practice that permits our Audit Committee to consist of less than three members, in lieu of complying with Section 303A.07 of the NewYork Stock Exchange Listed Company Manual which requires each company to have an audit committee of at least three members. Our Audit Committee currentlyconsists of two members. In addition, Section 303A.07 of the New York Stock Exchange Listed Company Manual require all audit committee members to satisfy therequirements for independence set out in Section 303A.02 of the New York Stock Exchange Listed Company Manual. We follow home country practice and currentlyhave one member who does not fully satisfy all the independence requirements under Section 303A.02.Pursuant to Sections 303A.04 and 303A.05 of the New York Stock Exchange Listed Company Manual, a listed U.S. company is required to have anominating/corporate governance committee and a compensation committee, each composed entirely of independent directors. We follow home country practice andthe compensation committee and corporate governance and nominating committee of our board of directors are not comprised entirely of independent directors.Other than the home country practice described above, we are not aware of any significant ways in which our corporate governance practices differ from thosefollowed by U.S. domestic companies under the New York Stock Exchange listing rules. See “Item 3. Key Information—D. Risk Factors—Risks Related to the ADS—We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions applicable to domesticpublic companies in the United States.”ITEM 16H.MINE SAFETY DISCLOSURENot applicable.PART IIIITEM 17.FINANCIAL STATEMENTSWe have elected to provide financial statements pursuant to Item 18.ITEM 18.FINANCIAL STATEMENTSThe consolidated financial statements of Sea Limited are included at the end of this annual report.135Table of ContentsITEM 19.EXHIBITSExhibitNumberDescription of Document1.1Eighth Amended and Restated Memorandum and Articles of Association of Sea Limited (incorporated by reference to Exhibit 3.2 from ourregistration statement on Form F-1 (File No. 333-220571) filed with the SEC on September 22, 2017) 2.1Form of Sea Limited’s Specimen American Depositary Receipt (included in Exhibit 2.3) 2.2Sea Limited’s Specimen Certificate for its Class A Ordinary Shares (incorporated by reference to Exhibit 4.2 from our registration statement on FormF-1 (File No. 333-220571) filed with the SEC on September 22, 2017) 2.3Deposit Agreement dated as of October 19, 2017 among Sea Limited, The Bank of New York Mellon and owners and holders of the ADSs(incorporated by reference to Exhibit 4.3 from our registration statement on Form S-8 (File No. 333-222071) filed publicly with the SEC on December15, 2017) 2.4*Description of Securities registered under Section 12 of the Exchange Act 3.1Irrevocable Proxy, dated as of September 1, 2017, between the founder of Sea Limited, on the one hand, and Tencent Holdings Limited, TencentLimited and Tencent Growthfund Limited, on the other hand (incorporated by reference to Exhibit 4.4 from our registration statement on Form F-1(File No. 333-220571) filed with the SEC on September 22, 2017) 4.1Amended and Restated Share Incentive Plan (incorporated by reference to Exhibit 10.1 from the post-effective amendment No.1 to our registrationstatement on Form S-8 (File No. 333-223551) filed with the SEC on March 28, 2018) 4.2Form of Indemnification Agreement between Sea Limited and each director and executive officer (incorporated by reference to Exhibit 10.2 from ourregistration statement on Form F-1 (File No. 333-220571) filed with the SEC on September 22, 2017) 4.3Form of Employment Letter with each executive officer (incorporated by reference to Exhibit 10.3 from our registration statement on Form F-1 (FileNo. 333-220571) filed with the SEC on September 22, 2017) 4.4†Software License and Distribution Agreement, dated as of January 20, 2010, by and between Riot Games, Inc. and Garena Online Private Limited,and amendments entered into from time to time (incorporated by reference to Exhibit 10.8 from our registration statement on Form F-1 (File No. 333-220571) filed with the SEC on September 22, 2017) 4.5Form of Exclusive Business Cooperation Agreement between Sea Limited’s Singapore subsidiary and each VIE of Sea Limited (incorporated byreference to Exhibit 10.9 from our registration statement on Form F-1 (File No. 333-220571) filed with the SEC on September 22, 2017) 4.6Form of Financial Support Confirmation Letter between Sea Limited or its Cayman Islands subsidiary and each VIE of Sea Limited (incorporated byreference to Exhibit 10.10 from our registration statement on Form F-1 (File No. 333-220571) filed with the SEC on September 22, 2017) 4.7Form of Loan Agreement between Sea Limited or its Cayman Islands subsidiary and the shareholder(s) of each VIE of Sea Limited (incorporated byreference to Exhibit 10.11 from our registration statement on Form F-1 (File No. 333-220571) filed with the SEC on September 22, 2017) 4.8Form of Exclusive Option Agreement among Sea Limited or its Cayman Islands subsidiary, each VIE of Sea Limited and the shareholder(s) of eachVIE of Sea Limited (incorporated by reference to Exhibit 10.12 from our registration statement on Form F-1 (File No. 333-220571) filed with the SECon September 22, 2017)136Table of ContentsExhibitNumberDescription of Document4.9Form of Equity Interest Pledge Agreement among Sea Limited or its Cayman Islands subsidiary, each VIE of Sea Limited and the shareholder(s) ofeach VIE of Sea Limited (incorporated by reference to Exhibit 10.13 from our registration statement on Form F-1 (File No. 333-220571) filed with theSEC on September 22, 2017) 4.10Form of Power of Attorney granted by the shareholder(s) of each VIE of Sea Limited (incorporated by reference to Exhibit 10.14 from ourregistration statement on Form F-1 (File No. 333-220571) filed with the SEC on September 22, 2017) 4.11Form of Spousal Consent Letter granted by the spouse(s) of the shareholder(s) of each VIE of Sea Limited (incorporated by reference to Exhibit10.15 from our registration statement on Form F-1 (File No. 333-220571) filed with the SEC on September 22, 2017) 4.12†Amended and Restated Mobile Game Development Agreement, dated as of March 8, 2018, by and between Garena Online Private Limited andProxima Beta Private Limited (incorporated by reference to Exhibit 4.16 from our annual report on Form 20-F filed with the SEC on April 10, 2018) 4.13Indenture, dated as of June 18, 2018, by and between Sea Limited and Wilmington Trust, National Association 4.14†Master License Agreement, dated as of November 16, 2018, by and between Garena Online Private Limited and Shenzhen Tencent ComputerSystems Company Limited 4.15Indenture, dated as of November 18, 2019, by and between Sea Limited and Wilmington Trust, National Association 4.16*Indenture, dated as of May 22, 2020, by and between Sea Limited and Wilmington Trust, National Association 8.1*List of Principal Subsidiaries and Consolidated Affiliated Entities of Sea Limited 11.1Code of Business Conduct and Ethics of Sea Limited (incorporated by reference to Exhibit 99.1 from our registration statement on Form F-1 (FileNo. 333-220571) filed with the SEC on September 22, 2017) 12.1*Certification by the Group Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 12.2*Certification by the Group Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 13.1**Certification by the Group Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 13.2**Certification by the Group Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 15.1*Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm 15.2*Consent of Maples and Calder (Hong Kong) LLP 15.3*Consent of LCS & Partners 15.4*Consent of Kudun and Partners Company Limited 15.5*Consent of Rajah & Tann Singapore LLP137Table of ContentsExhibitNumberDescription of Document101.INSInline XBRL Instance Document — the instance document does not appear in the Interactive Data File because its XBRL tags are embeddedwithin the Inline XBRL document 101.SCHInline XBRL Taxonomy Extension Schema Document 101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document 101.LABInline XBRL Taxonomy Extension Label Linkbase Document 101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document 104Cover Page Interactive Data File (embedded within the Exhibit 101 Inline XBRL document)*Filed with this annual report on Form 20-F.**Furnished with this annual report on Form 20-F.†Confidential treatment has been granted by the U.S. Securities and Exchange Commission with respect to portions of the exhibit that have been redacted.138Table of ContentsSIGNATURESThe registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to signthis annual report on its behalf. Sea Limited By:/s/ Forrest Xiaodong Li Name:Forrest Xiaodong Li Title:Chairman and Group Chief Executive OfficerDate: April 16, 2021Table of ContentsSEA LIMITEDCONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2018, 2019 AND 2020Table of ContentsSEA LIMITEDINDEX TO CONSOLIDATED FINANCIAL STATEMENTSPageReport of Independent Registered Public Accounting FirmF-2Consolidated Balance Sheets as of December 31, 2019 and 2020F-7Consolidated Statements of Operations for the Years Ended December 31, 2018, 2019 and 2020F-11Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2018, 2019 and 2020F-13Consolidated Statements of Cash Flows for the Years Ended December 31, 2018, 2019 and 2020F-14Consolidated Statements of Changes in Shareholders’ Equity (Deficit) for the Years Ended December 31, 2018, 2019 and 2020F-17Notes to the Consolidated Financial Statements for the Years Ended December 31, 2018, 2019 and 2020F-20Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Shareholders and the Board of Directors of Sea LimitedOpinion on the Financial StatementsWe have audited the accompanying consolidated balance sheets of Sea Limited (the Company) as of December 31, 2019 and 2020, the related consolidated statementsof operations, comprehensive loss, cash flows, and shareholders‘ equity (deficit) for each of the three years in the period ended December 31, 2020, and the relatednotes (collectively referred to as the “consolidated financial statements“). In our opinion, the consolidated financial statements present fairly, in all material respects,the financial position of the Company as of December 31, 2019 and 2020, and the results of its operations and its cash flows for each of the three years in the periodended December 31, 2020, in conformity with U.S. generally accepted accounting principles.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal controlover financial reporting as of December 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of SponsoringOrganizations of the Treadway Commission (2013 framework), and our report dated April 16, 2021 expressed an unqualified opinion thereon.Adoption of Topic 842 LeasesAs discussed in Note 2(s) to the consolidated financial statements, the Company has changed its method for accounting for leases in 2019 due to the adoption ofTopic 842 Leases.Adoption of ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial InstrumentsAs discussed in Note 2(g) to the consolidated financial statements, the Company has changed its method for accounting for accounts receivable, loans receivable andallowance for credit losses in 2020 due to the adoption of ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses onFinancial Instruments.Basis for OpinionThese financial statements are the responsibility of the Company‘s management. Our responsibility is to express an opinion on the Company‘s financial statementsbased on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance withthe U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits inaccordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financialstatements are free of material misstatement, whether due to error or fraud.Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performingprocedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financialstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overallpresentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.F-2Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Shareholders and the Board of Directors of Sea LimitedCritical Audit MattersThe critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to becommunicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especiallychallenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financialstatements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on theaccounts or disclosures to which they relate.Recognition of Digital Entertainment (“DE”) RevenueDescription of the Matter For the year ended December 31, 2020, the Company’s revenue arising from DE was $2,016.0 million. As outlined in Note 2(o) of the consolidated financial statements, DE revenue is recognized over the performance obligation period.The Company has determined that an implied obligation exists to the paying users to continue providing access to the purchasedvirtual goods within the online games over an estimated delivery obligation period. Such delivery obligation period is determined inaccordance with the estimated average lifespan of the virtual goods sold or the estimated average lifespan of the paying users of thesaid games or similar games. Auditing the DE revenue recognition process is complex and involves judgement to determine the historical paying users’ inactiverate, usage patterns and playing behavior, in estimating the average lifespan of the virtual goods sold and average lifespan of thepaying users of the said games or similar games. In addition, the Company utilizes various operating systems to process user dataand transactions and relies on automated processes and controls over the completeness and accuracy of the historical user andgame data, which are key inputs to the above-mentioned estimates. How We Addressed theMatter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of internal controls over the Company’sDE revenue recognition process. For example, we tested the automated controls of the related operating systems. We also tested theeffectiveness of management’s review controls over assessing the completeness and accuracy of the historical user and game dataand the appropriateness of the judgements regarding the most relevant historical user and game data to be applied in their estimates. To test the recognition of DE revenue, our audit procedures included, among others, testing the completeness and accuracy of theabove-mentioned underlying historical user and game data and assessing the reasonableness of the historical data applied inestimating the average lifespan of the virtual goods sold and average lifespan of the paying users of the said games or similar games.We also recalculated the amount of revenue to be deferred based on management’s estimated delivery obligation periods andcompared those amounts with the amounts recorded by the Company.F-3Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Shareholders and the Board of Directors of Sea LimitedCritical Audit Matters (continued)Measurement of long-lived assets in E-commerce (“EC”) segmentDescription of the Matter As at December 31, 2020, the Company’s long-lived assets in EC segment amounted to approximately 74.7% of the Company’s long-lived assets. The long-lived assets include property and equipment and intangible assets. As outlined in Note 2(m) to the consolidated financial statements, the Company evaluates its long-lived assets for impairment whenthere are events or changes in circumstances which indicate that the carrying amounts of the long-lived assets may not be recoverable.Due to the continued losses incurred by the EC segment, the Company evaluated the related long-lived assets for impairment at theasset group level by comparing the carrying amount of the asset group to the recoverable value determined by forecastedundiscounted cash flows expected to be generated by this asset group. Auditing management’s long-lived assets impairment test was highly judgmental due to the magnitude of the carrying amount of long-lived assets and management’s judgement in estimating the recoverable value (undiscounted cash flows) of the asset group, whichwere sensitive to key assumptions such as projected revenue and sales and marketing expenses. How We Addressed theMatter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s long-livedasset impairment process to determine the recoverable value of the asset group. For example, we tested controls over management’sreview of the key assumptions used in estimating the recoverable value. To test the impairment of long-lived assets, our audit procedures included, among others, obtaining an understanding frommanagement regarding the basis of which the undiscounted cash flows were prepared and assessing the reasonableness of theforecasted undiscounted cash flows by comparing them against the Company’s business strategies and underlying key assumptionsover the forecast periods, taking into consideration current industry and economic trends. We performed sensitivity analyses over thekey assumptions described above to evaluate the changes to the estimated recoverable value for the asset group that would resultfrom changes in the assumptions./s/ Ernst & Young LLPWe have served as the Company‘s auditor since 2010.SingaporeApril 16, 2021F-4Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Shareholders and the Board of Directors of Sea LimitedOpinion on Internal Control Over Financial ReportingWe have audited Sea Limited’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control—IntegratedFramework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), (the COSO criteria). In our opinion, Sea Limited (theCompany) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balancesheets of the Company as of December 31, 2019 and 2020, the related consolidated statements of operations, comprehensive loss, cash flows, and shareholders‘equity (deficit) for each of the three years in the period ended December 31, 2020, and the related notes and our report dated April 16, 2021 expressed an unqualifiedopinion thereon.Basis for OpinionThe Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internalcontrol over financial reporting included in the accompanying Management’s Assessment of Internal Control Over Financial Reporting. Our responsibility is toexpress an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and arerequired to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securitiesand Exchange Commission and the PCAOB.We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assuranceabout whether effective internal control over financial reporting was maintained in all material respects.Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluatingthe design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in thecircumstances. We believe that our audit provides a reasonable basis for our opinion.F-5Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMDefinition and Limitations of Internal Control Over Financial ReportingA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financialreporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactionsand dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financialstatements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance withauthorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorizedacquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance withthe policies or procedures may deteriorate./s/ Ernst & Young LLPSingaporeApril 16, 2021F-6Table of ContentsSEA LIMITEDCONSOLIDATED BALANCE SHEETS(Amounts expressed in thousands of US dollars (“$”)) As of December 31, Note 2019$ 2020$ ASSETS Current assets Cash and cash equivalents 3,118,988 6,166,880 Restricted cash 434,938 859,192 Accounts receivable, net of allowance for credit losses of $4,083 and $7,978, as of December 31, 2019 andDecember 31, 2020 respectively 5 187,035 362,999 Prepaid expenses and other assets 6 535,187 1,054,229 Loans receivable, net of allowance for credit losses of nil and $20,872, as of December 31, 2019 andDecember 31, 2020 respectively 7 – 285,937 Inventories, net 26,932 64,219 Short-term investments 11 102,324 126,099 Amounts due from related parties 4,735 19,449 Total current assets 4,410,139 8,939,004 Non-current assets Property and equipment, net 8 318,620 386,401 Operating lease right-of-use assets, net 9 182,965 234,555 Intangible assets, net 10 15,020 39,773 Long-term investments 11 113,797 190,482 Prepaid expenses and other assets 6 65,684 204,804 Loans receivable, net of allowance for credit losses of nil and $19,612, as of December 31, 2019 andDecember 31, 2020 respectively 7 – 117,149 Restricted cash 16,652 27,321 Deferred tax assets 19 70,340 99,904 Goodwill 4 30,952 216,278 Total non-current assets 814,030 1,516,667 Total assets 5,224,169 10,455,671 The accompanying notes are an integral part of these consolidated financial statements.F-7Table of ContentsSEA LIMITEDCONSOLIDATED BALANCE SHEETS (continued)(Amounts expressed in thousands of US dollars (“$”)) As of December 31, Note 2019$ 2020$ LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities Accounts payable (including accounts payable of the Consolidated VIEs without recourse to the primarybeneficiaries of $11,274 and $19,290 as of December 31, 2019 and 2020, respectively) 69,370 121,637 Accrued expenses and other payables (including accrued expenses and other payables of theConsolidated VIEs without recourse to the primary beneficiaries of $93,146 and $107,512 as of December31, 2019 and 2020, respectively) 12 980,805 2,033,461 Advances from customers (including advances from customers of the Consolidated VIEs without recourseto the primary beneficiaries of $6,116 and $11,014 as of December 31, 2019 and 2020, respectively) 65,062 161,379 Amounts due to related parties (including amounts due to related parties of the Consolidated VIEs withoutrecourse to the primary beneficiaries of $1,569 and $2,347 as of December 31, 2019 and 2020,respectively) 34,990 42,613 Short-term borrowings (including short-term borrowings of the Consolidated VIEs without recourse to theprimary beneficiaries of $1,258 and nil as of December 31, 2019 and 2020, respectively) 13 1,258 – Operating lease liabilities (including operating lease liabilities of the Consolidated VIEs without recourseto the primary beneficiaries of $8,797 and $10,122 as of December 31, 2019 and 2020, respectively) 9 56,320 74,506 Deferred revenue (including deferred revenue of the Consolidated VIEs without recourse to the primarybeneficiaries of $133,362 and $212,377 as of December 31, 2019 and 2020, respectively) 1,097,868 2,150,165 Convertible notes (including convertible notes of the Consolidated VIEs without recourse to the primarybeneficiaries of nil and nil as of December 31, 2019 and 2020, respectively) 14 29,481 – Income tax payable (including income tax payable of the Consolidated VIEs without recourse to theprimary beneficiaries of $5,850 and $566 as of December 31, 2019 and 2020, respectively) 27,212 52,306 Total current liabilities 2,362,366 4,636,067 The accompanying notes are an integral part of these consolidated financial statements.F-8Table of ContentsSEA LIMITEDCONSOLIDATED BALANCE SHEETS (continued)(Amounts expressed in thousands of US dollars (“$”)) As of December 31, Note 2019$ 2020$ Non-current liabilities Accrued expenses and other payables (including accrued expenses and other payables of theConsolidated VIEs without recourse to the primary beneficiaries of $1,357 and $1,907 as of December 31,2019 and 2020, respectively) 12 25,802 36,159 Long-term borrowings (including long-term borrowings of the Consolidated VIEs without recourse to theprimary beneficiaries of $358 and nil as of December 31, 2019 and 2020, respectively) 13 358 – Operating lease liabilities (including operating lease liabilities of the Consolidated VIEs without recourseto the primary beneficiaries of $20,129 and $16,916 as of December 31, 2019 and 2020, respectively) 9 144,000 177,870 Deferred revenue (including deferred revenue of the Consolidated VIEs without recourse to the primarybeneficiaries of $49,325 and $55,200 as of December 31, 2019 and 2020, respectively) 160,708 343,297 Convertible notes (including convertible notes of the Consolidated VIEs without recourse to the primarybeneficiaries of nil and nil as of December 31, 2019 and 2020, respectively) 14 1,356,332 1,840,406 Deferred tax liabilities (including deferred tax liabilities of the Consolidated VIEs without recourse to theprimary beneficiaries of nil and nil as of December 31, 2019 and 2020, respectively) 19 975 1,526 Unrecognized tax benefits (including unrecognized tax benefits of the Consolidated VIEs without recourseto the primary beneficiaries of $976 and $107 as of December 31, 2019 and 2020, respectively) 976 107 Total non-current liabilities 1,689,151 2,399,365 Total liabilities 4,051,517 7,035,432 Commitments and contingencies 24 The accompanying notes are an integral part of these consolidated financial statements.F-9Table of ContentsSEA LIMITEDCONSOLIDATED BALANCE SHEETS (continued)(Amounts expressed in thousands of US dollars (“$”) except for number of shares and par value) As of December 31, Note 2019$ 2020$ Shareholders’ equity Class A Ordinary shares (Par value of US$0.0005 per share; Authorized: 14,800,000,000 and 14,800,000,000shares as of December 31, 2019 and 2020, respectively; Issued and outstanding: 311,068,949 and359,755,767 shares as of December 31, 2019 and 2020, respectively) 16 154 179 Class B Ordinary shares (Par value of US$0.0005 per share; Authorized: 200,000,000 and 200,000,000 sharesas of December 31, 2019 and 2020, respectively; Issued and outstanding: 152,175,703 and 152,175,703shares as of December 31, 2019 and 2020, respectively) 16 76 76 Additional paid-in capital 4,687,284 8,526,571 Accumulated other comprehensive income 17 5,449 4,681 Statutory reserves 18 46 2,363 Accumulated deficit (3,530,585) (5,150,958) Total Sea Limited shareholders’ equity 1,162,424 3,382,912 Non-controlling interests 10,228 37,327 Total shareholders’ equity 1,172,652 3,420,239 Total liabilities and shareholders’ equity 5,224,169 10,455,671 The accompanying notes are an integral part of these consolidated financial statements.F-10Table of ContentsSEA LIMITEDCONSOLIDATED STATEMENTS OF OPERATIONS(Amounts expressed in thousands of US dollars (“$”)) Year ended December 31, Note 2018$ 2019$ 2020$ Revenue Service revenue Digital entertainment 462,464 1,136,017 2,015,972 E-commerce and other services 270,049 822,659 1,777,330 Sales of goods 94,455 216,702 582,362 Total revenue 826,968 2,175,378 4,375,664 Cost of revenue Cost of service Digital entertainment (267,359) (435,905) (702,329)E-commerce and other services (446,281) (907,518) (1,743,773) Cost of goods sold (98,570) (227,035) (580,657) Total cost of revenue (812,210) (1,570,458) (3,026,759) Gross profit 14,758 604,920 1,348,905 Operating income (expenses) Other operating income 9,799 15,890 189,645 Sales and marketing expenses (705,015) (969,543) (1,830,875)General and administrative expenses (240,781) (385,865) (657,215)Research and development expenses (67,529) (156,634) (353,785) Total operating expenses (1,003,526) (1,496,152) (2,652,230) Operating loss (988,768) (891,232) (1,303,325)Interest income 11,520 33,935 24,804 Interest expense (31,295) (48,208) (148,243)Investment gain (loss), net 8,603 11,794 (17,820)Changes in fair value of convertible notes 14(a) 41,259 (472,877) (87)Foreign exchange gain (loss) 4,801 (2,031) (38,567) Loss before income tax and share of results of equity investees (953,880) (1,368,619) (1,483,238)Income tax expense 19 (4,088) (85,864) (141,640)Share of results of equity investees 11 (3,066) (3,239) 721 Net loss (961,034) (1,457,722) (1,624,157) Net (profit) loss attributable to non-controlling interests (207) (5,077) 6,101 Net loss attributable to Sea Limited’s ordinary shareholders (961,241) (1,462,799) (1,618,056)The accompanying notes are an integral part of these consolidated financial statements.F-11Table of ContentsSEA LIMITEDCONSOLIDATED STATEMENTS OF OPERATIONS (continued)(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data) Year ended December 31, Note 2018$ 2019$ 2020$ Loss per share: Basic and diluted 20 (2.84) (3.35) (3.39) Weighted average shares used in loss per share computation: Basic and diluted 338,472,987 436,601,801 477,264,888 The accompanying notes are an integral part of these consolidated financial statements.F-12Table of ContentsSEA LIMITEDCONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS(Amounts expressed in thousands of US dollars (“$”)) Year ended December 31, 2018$ 2019$ 2020$ Net loss (961,034) (1,457,722) (1,624,157) Other comprehensive (loss) income, net of tax: Foreign currency translation adjustments: Translation (loss) gain (13,858) 3,230 2,532 Net change (13,858) 3,230 2,532 Available-for-sale investments: Change in unrealized gain (loss) 18,269 (12,869) (4,393) Net change 18,269 (12,869) (4,393) Total other comprehensive income (loss), net of tax 4,411 (9,639) (1,861) Less: total comprehensive (loss) income attributable to non-controlling interests (120) (5,188) 7,146 Total comprehensive loss attributable to Sea Limited’s ordinary shareholders (956,743) (1,472,549) (1,618,872)The accompanying notes are an integral part of these consolidated financial statements.F-13Table of ContentsSEA LIMITEDCONSOLIDATED STATEMENTS OF CASH FLOWS(Amounts expressed in thousands of US dollars (“$”)) Year ended December 31, 2018$ 2019$ 2020$ Cash flows from operating activities Net loss (961,034) (1,457,722) (1,624,157)Adjustments to reconcile net loss to net cash used in operating activities: Allowance for credit losses 2,189 3,581 57,509 Amortization of discount on convertible notes 14,154 33,334 88,198 Amortization of intangible assets 23,826 4,849 11,694 Changes in fair value of convertible notes (41,259) 472,877 87 Deferred income tax (19,797) (4,333) (27,451)Depreciation of property and equipment 54,902 116,783 169,067 Gain on disposal of subsidiaries – – (62,115)Gain on disposal of investments (7,685) (129) – Gain on re-measurement of equity interests – (4,500) (3,003)Impairment loss on intangible assets 5,166 – 5,713 Impairment loss on investments 3,416 1,155 61,238 Loss on debt extinguishment – – 24,400 Net foreign exchange differences (10,230) (292) 11,298 Prepaid licensing fees written-off 4,544 – – Share-based compensation 58,121 117,069 290,246 Share of results of equity investees 3,066 3,239 (721)Unrealized loss on marketable securities – – 24,150 Others 2,589 1,891 3,550 Operating cash flows before changes in working capital: (868,032) (712,198) (970,297) Inventories (28,465) 11,762 (38,528)Accounts receivable (38,524) (86,546) (174,767)Prepaid expenses and other assets (159,025) (214,926) (527,139)Amounts due from related parties (3,306) 538 (10,897)Operating lease right-of-use assets – (62,140) (45,203)Accounts payable 29,733 31,381 50,860 Accrued expenses and other payables 354,946 354,151 943,586 Advances from customers 2,727 34,263 92,851 Operating lease liabilities – 70,901 46,352 Deferred revenue 204,161 637,214 1,162,399 Income tax payable (75) 17,207 25,505 Amounts due to related parties 10,640 (11,742) 1,146 Net cash (used in) generated from operating activities (495,220) 69,865 555,868 The accompanying notes are an integral part of these consolidated financial statements.F-14Table of ContentsSEA LIMITEDCONSOLIDATED STATEMENTS OF CASH FLOWS (continued)(Amounts expressed in thousands of US dollars (“$”)) Year ended December 31, 2018$ 2019$ 2020$ Cash flows from investing activities Purchase of property and equipment (177,343) (239,844) (336,274)Purchase of intangible assets (1,142) (7,254) (20,780)Purchase of investments (69,641) (118,462) (219,548)Proceeds from disposal of property and equipment 668 1,236 1,732 Proceeds from disposal of intangible assets 245 – – Proceeds from sale and maturity of investments 22,685 640 19,541 Distributions from investments – 465 1,294 Acquisition of businesses, net of cash acquired – – (92,190)Disposal of subsidiaries, net of cash disposed – – 15,008 Change in loans receivable – – (255,695) Net cash used in investing activities (224,528) (363,219) (886,912) Cash flows from financing activities Proceeds from issuance of convertible notes, net 564,938 1,138,500 1,141,362 Purchase of capped call – (97,060) (135,700)Proceeds from borrowings 2,055 868 1,224 Repayment of borrowings (2,698) (2,871) (31,833)Proceeds from issuance of ordinary shares, net 4,574 1,538,802 2,970,248 Transaction with non-controlling interests (25,768) – (20,736)Proceeds from partial disposal of a subsidiary without a loss in control 3,527 – – Contribution by non-controlling interest – 1,356 4,631 Payments for exchange and conversion of convertible notes – – (50,009)Change in accrued expenses and other payables – – (146,055) Net cash generated from financing activities 546,628 2,579,595 3,733,132 Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash (12,546) 25,025 80,727 Net (decrease) increase in cash, cash equivalents and restricted cash (185,666) 2,311,266 3,482,815 Cash, cash equivalents and restricted cash at beginning of the year 1,444,978 1,259,312 3,570,578 Cash, cash equivalents and restricted cash at end of the year 1,259,312 3,570,578 7,053,393 The accompanying notes are an integral part of these consolidated financial statements.F-15Table of ContentsSEA LIMITEDCONSOLIDATED STATEMENTS OF CASH FLOWS (continued)(Amounts expressed in thousands of US dollars (“$”)) Year ended December 31, 2018$ 2019$ 2020$ Supplement disclosures of cash flow information: Income taxes paid (23,961) (74,349) (144,874)Interest paid (42,901) (13,501) (42,003) Supplement disclosures of non-cash activities: Purchase of property and equipment included in accrued expenses and other payables 7,579 (9,804) 1,834 Purchase of intangible assets included in accrued expenses and other payables (444) (422) 484 Purchase of property and equipment included in prepayments (6,104) 3,851 (83,782)Purchase of intangible assets included in prepayments 4,547 51 (6,638)Conversion and exchange of convertible notes into ordinary shares (48,975) (1,080,112) (464,930)Acquisition of a subsidiary by conversion of convertible notes – – 72,000 Proceeds from disposal of a subsidiary included in prepaid expenses and other assets – – 12,870 Transfers of loans receivable to prepaid expenses and other assets – – 8,830 The accompanying notes are an integral part of these consolidated financial statements.F-16Table of ContentsSEA LIMITEDCONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT)(Amounts expressed in thousands of US dollars (“$”) except for number of shares) Note No ofordinaryshares Ordinaryshares$ Additionalpaid-incapital$ Accumulatedothercomprehensiveincome$ Statutoryreserves$ Accumulateddeficit$ Total SeaLimitedshareholders’equity(deficit)$ Non-controllinginterests$ TotalShareholders’equity(deficit)$ Balance as of January 1,2018 334,966,213 167 1,564,656 10,701 46 (1,106,545) 469,025 6,106 475,131 Comprehensive loss: Net loss for the year – – – – – (961,241) (961,241) 207 (961,034)Foreign currencytranslation adjustments – – – (13,771) – – (13,771) (87) (13,858)Net change in unrealizedgain on available-for-saleinvestments – – – 18,269 – – 18,269 – 18,269 Transaction with non-controlling interests – – (21,047) – – – (21,047) (4,721) (25,768)Disposal of interest in asubsidiary without changein control – – 1,348 – – – 1,348 2,179 3,527 Conversion of convertiblenotes into Class Aordinary shares 14(a) 3,592,415 2 48,973 – – – 48,975 – 48,975 Equity component ofconvertible notes 14(b) – – 152,714 – – – 152,714 – 152,714 Shares issued to depositarybank 3,200,000 – – – – – – – – Exercise of share options 1,705,147 1 4,573 – – – 4,574 – 4,574 Restricted share awards andrestricted share units issued 68,000 – – – – – – – – Share-based compensation – – 58,015 – – – 58,015 – 58,015 Settlement of shareincentives with sharesheld by depositarybank (933,007) – – – – – – – – Balance as of December 31,2018 342,598,768 170 1,809,232 15,199 46 (2,067,786) (243,139) 3,684 (239,455)The accompanying notes are an integral part of these consolidated financial statements.F-17Table of ContentsSEA LIMITEDCONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT) (continued)(Amounts expressed in thousands of US dollars (“$”) except for number of shares) Note No ofordinaryshares Ordinaryshares$ Additionalpaid-incapital$ Accumulatedothercomprehensiveincome$ Statutoryreserves$ Accumulateddeficit$ TotalSea Limitedshareholders’(deficit)equity$ Non-controllinginterests$ TotalShareholders’(deficit)equity$ Balance as of January 1,2019 342,598,768 170 1,809,232 15,199 46 (2,067,786) (243,139) 3,684 (239,455) Comprehensive loss: Net loss for the year – – – – – (1,462,799) (1,462,799) 5,077 (1,457,722)Foreign currencytranslation adjustments – – – 3,119 – – 3,119 111 3,230 Net change in unrealizedgain on available-for-saleinvestments – – – (12,869) – – (12,869) – (12,869)Conversion of convertiblenotes into Class Aordinary shares 14(a) 45,645,884 23 1,080,089 – – – 1,080,112 – 1,080,112 Issuance of Class A ordinaryshares, net of issuancecosts 16 69,000,000 35 1,517,923 – – – 1,517,958 – 1,517,958 Capital contributed by non-controlling interest – – – – – – – 1,356 1,356 Equity component ofconvertible notes 14(b) – – 240,582 – – – 240,582 – 240,582 Purchase of capped callsrelated to issuance ofconvertible notes 14(b) – – (97,060) – – – (97,060) – (97,060)Shares issued to depositarybank 6,000,000 – – – – – – – – Exercise of share options 3,736,976 2 20,843 – – – 20,845 – 20,845 Restricted share awards andrestricted share units issued 1,983,639 – – – – – – – – Share-based compensation – – 115,675 – – – 115,675 – 115,675 Settlement of shareincentives with shares heldby depositary bank (5,720,615) – – – – – – – – Balance as of December 31,2019 463,244,652 230 4,687,284 5,449 46 (3,530,585) 1,162,424 10,228 1,172,652 The accompanying notes are an integral part of these consolidated financial statements.F-18Table of ContentsSEA LIMITEDCONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT) (continued)(Amounts expressed in thousands of US dollars (“$”) except for number of shares) Note No ofordinaryshares Ordinaryshares$ Additionalpaid-incapital$ Accumulatedothercomprehensiveincome$ Statutoryreserves$ Accumulateddeficit$ TotalSea Limitedshareholders’equity$ Non-controllinginterests$ TotalShareholders’equity$ Balance as of January 1,2020 463,244,652 230 4,687,284 5,449 46 (3,530,585) 1,162,424 10,228 1,172,652 Comprehensive loss: Net loss for the year – – – – – (1,618,056) (1,618,056) (6,101) (1,624,157)Foreign currencytranslation adjustments – – – 3,603 – – 3,603 (1,071) 2,532 Net change in unrealizedgain on available-for-saleinvestments – – – (4,419) – – (4,419) 26 (4,393)Acquisition of subsidiaries – – – – – – – 39,594 39,594 Appropriation of statutoryreserves – – – – 2,317 (2,317) – – – Equity component ofconvertible notes 14(b) – – 284,727 – – – 284,727 – 284,727 Purchase of capped callsrelated to issuance ofconvertible notes 14(b) – – (135,700) – – – (135,700) – (135,700)Conversion of convertiblenotes into Class Aordinary shares 27,406,818 14 464,916 – – – 464,930 – 464,930 Issuance of Class A ordinaryshares, net of issuancecosts 16 15,180,000 8 2,908,291 – – – 2,908,299 – 2,908,299 Capital contributed by non-controlling interest – – – – – – – 4,631 4,631 Transactions with non-controlling interests – – (20,294) 48 – – (20,246) (490) (20,736)Disposal of interest in asubsidiary – – – – – – – (11,971) (11,971)Shares issued to depositarybank 6,000,000 – – – – – – – – Exercise of share options 2,861,169 1 61,948 – – – 61,949 – 61,949 Restricted share awards andrestricted share units issued 3,247,992 2 (2) – – – – – – Share-based compensation – – 275,401 – – – 275,401 2,481 277,882 Settlement of shareincentives with shares heldby depositary bank (6,009,161) – – – – – – – – Balance as of December 31,2020 511,931,470 255 8,526,571 4,681 2,363 (5,150,958) 3,382,912 37,327 3,420,239 The accompanying notes are an integral part of these consolidated financial statements.F-19Table of ContentsSEA LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)1.ORGANIZATIONSea Limited (the “Company”) is a limited liability company incorporated in the Cayman Islands on May 8, 2009 and conducts its business primarily throughits subsidiaries and variable interest entities (“VIEs”) in markets including Singapore, Thailand, Taiwan, Vietnam, Indonesia, Malaysia and the Philippines.The Company is principally engaged in the digital entertainment, e-commerce and digital financial service businesses in the region.(a)As of December 31, 2020, significant subsidiaries of the Company include the following entities:Entity Date ofIncorporation/Acquisition Place ofincorporation Percentage ofdirect ownershipby the Company Principal activities 2019 2020 Garena Online Private Limited (“GarenaOnline”) May 8, 2009 Singapore 100 100 Game operations andsoftware development Shopee Limited (formerly known asShopee Southeast Asia Limited) January 16, 2015 CaymanIslands 100 100 Investment holdingcompany Shopee Singapore Private Limited February 5, 2015 Singapore 100 100 Online platform PT Shopee International Indonesia August 5, 2015 Indonesia 100 100 Online platformF-20Table of ContentsSEA LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)1.ORGANIZATION (continued)(b)VIE structureThe Company operates in various markets in the region that have certain restrictions on foreign ownership of local companies. To comply with theseforeign ownership restrictions, the Company conducts certain businesses through VIEs using contractual agreements (the “VIE Agreements”).The following is a summary of the key terms of the VIE Agreements that were signed amongst the primary beneficiary and the respectiveshareholders of the VIEs (collectively the “VIE Shareholders”):Loan AgreementsIn order to ensure that the VIE Shareholders are able to provide capital to each of these VIEs in order to develop its business, the primary beneficiaryhas entered into loan agreements with each VIE Shareholder.Pursuant to the loan agreements, the primary beneficiary has granted loans to the VIE Shareholders that may only be used for the purpose ofacquiring equity interests in or contributing to the registered capital of these VIEs. The loans may be repaid only by transferring all of the VIEShareholders’ equity interests in the VIE to the primary beneficiary or their respective designee upon exercise of the option under the exclusiveoption agreement. The loan agreements also prohibit the VIE Shareholders from assigning or transferring to any third party, or from creating orcausing any security interest to be created on, any part of their equity interests in these entities. In the event that the respective VIE Shareholderssell their equity interests to the primary beneficiary or their respective designee at a price which is equal to or lower than the principal amount of theloan, the loan will be interest-free. If the price is higher than the principal amount of the loans, the excess amount will be deemed to be interest on theloans payable by the VIE Shareholders to the primary beneficiary.Exclusive Option AgreementsIn order to ensure that the Company is able to acquire all of the equity interests in the VIEs at its discretion, the primary beneficiary has entered intoexclusive option agreements with the respective VIE Shareholders. Each option is exercisable by the primary beneficiary at any time, provided thatdoing so is not prohibited by law. The exercise price under each option is the minimum amount required by law and any proceeds obtained by therespective VIE Shareholders through the transfer of their equity interests in these VIEs shall be used for the repayment of the loan provided inaccordance with the loan agreements.During the terms of the exclusive option agreements, the VIE Shareholders will not grant a similar right or transfer any of the equity interests in theseVIEs to any party other than the primary beneficiary or their respective designee, nor will it pledge, create or permit any security interest or similarencumbrance to be created on any of the equity interests. The VIEs cannot declare any profit distributions or grant loans in any form without theprior consent of the primary beneficiary. The VIE Shareholders must remit in full any funds received from the VIEs to the primary beneficiary or theirrespective designee in the event any distributions are made by the VIEs.F-21Table of ContentsSEA LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)1.ORGANIZATION (continued)(b)VIE structure (continued)Exclusive Option Agreements (continued)The exclusive option agreements will remain in effect until the respective VIE Shareholder has transferred such shareholder’s equity interests in theVIEs to the primary beneficiary or their respective designee.Powers of AttorneyIn order to ensure that the Company is able to make all of the decisions concerning the VIEs, the primary beneficiary has entered into powers ofattorney with the shareholders of these VIEs. Pursuant to the powers of attorney, each VIE Shareholder has irrevocably appointed the primarybeneficiary as their attorney-in-fact to act for all matters pertaining to such shareholding in these VIEs and to exercise all of their rights asshareholders, including but not limited to attending shareholders’ meetings and designating and appointing directors, supervisors, the chiefexecutive officer and other senior management members of these entities, and selling, transferring, pledging or disposing the shares of theseentities. The primary beneficiary may authorize or assign its rights to any other person or entity at its sole discretion without prior notice to or priorconsent from the VIE Shareholders of these VIEs.Each power of attorney remains in effect until the VIE Shareholder ceases to hold any equity interest in the respective VIE.Equity Interest Pledge AgreementsIn order to secure the performance of the VIEs and the VIE Shareholders under the contractual arrangements, each of the VIE Shareholders of theVIEs has pledged all of their shares to the primary beneficiary. These pledges secure the contractual obligations and indebtedness of the VIEShareholders, including all penalties, damages and expenses incurred by the primary beneficiary in connection with the contractual arrangements,and all other payments due and payable to the primary beneficiary by the respective VIEs under the exclusive business cooperation agreements andby the VIE Shareholders under the loan agreements, exclusive option agreements, and powers of attorney. Should the VIEs or their respective VIEShareholders breach or default under any of the contractual arrangements, the primary beneficiary has the right to require the transfer of therespective VIE Shareholders’ pledged equity interests in the VIEs to the primary beneficiary or their respective designee, to the extent permitted bylaws, or require a sale of the pledged equity interests and has priority in any proceeds from the auction or sale of such pledged interests. Moreover,the primary beneficiary has the right to collect any and all dividends in respect of the pledged equity interests during the term of the pledge.F-22Table of ContentsSEA LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)1.ORGANIZATION (continued)(b)VIE structure (continued)Equity Interest Pledge Agreements (continued)Unless the respective VIEs have fully performed all of their obligations in accordance with the exclusive business cooperation agreements and thepledged equity interests have been fully transferred to the primary beneficiary or their respective designee in accordance with the exclusive optionagreements and the loan agreements, the equity interest pledge agreements will continue to remain in effect.Spousal Consent LettersUnder the spousal consent letters, each spouse of the married VIE Shareholders of the VIEs unconditionally and irrevocably agreed that the equityinterest in the respective VIE held by and registered in the name of their spouse will be disposed of pursuant to the contractual arrangements. Eachspouse agreed not to assert any rights over the equity interest in these VIEs held by their spouse. In addition, in the event that the spouses obtainany equity interest in these VIEs held by their spouse for any reason, they agreed to be bound by the contractual arrangements.Exclusive Business Cooperation AgreementsIn order to ensure that the Company receives the economic benefits of the VIEs, the primary beneficiary has entered into exclusive businesscooperation agreements with these VIEs under which the primary beneficiary has the exclusive right to provide or to designate any third party toprovide, among other things, technical support, consulting services, intellectual property licenses and other services to these VIEs, and these VIEsagree to accept all services provided by the primary beneficiary or their respective designee. Without the primary beneficiary’s prior written consent,the VIEs are prohibited from directly or indirectly engaging any third party to provide the same or any similar services under these agreements orestablishing similar cooperative relationships with any third party regarding the matters contemplated by these agreements. In addition, the primarybeneficiary shall have exclusive and proprietary ownership, rights and interests in any and all intellectual properties arising out of or created duringthe performance of the exclusive business cooperation agreements.The VIEs agree to pay a monthly fee to the primary beneficiary at an amount determined at the primary beneficiary’s sole discretion after taking intoaccount factors including the complexity and difficulty of the services provided, the level of and time consumed by its employees or third partyservice providers designated by the primary beneficiary providing the services, the content and value of services and licenses provided and themarket price of the similar type of services or licenses.The exclusive business cooperation agreements will remain effective unless terminated in accordance with their provisions or terminated in writingby the primary beneficiary. Unless otherwise required by applicable laws, these VIEs do not have any right to terminate the exclusive businesscooperation agreements in any event.F-23Table of ContentsSEA LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)1.ORGANIZATION (continued)(b)VIE structure (continued)(b)VIE structure (continued)Exclusive Business Cooperation Agreements (continued)The total fee billed for the years ended December 31, 2018, 2019 and 2020 were $74,875, $90,510 and $171,962, respectively.Financial Support Confirmation LettersIn order to ensure that the VIEs have sufficient cash flow to fund their daily operations and/or to set off any losses incurred in such operations, theprimary beneficiary has entered into financial support confirmation letters with each of these VIEs. Under the financial support confirmation letters,the primary beneficiary pledges to provide continuous financial support to these VIEs by itself or their respective designee and agreed to forego itsright to seek repayment in the event these entities are unable to repay such financial support or the primary beneficiary becomes liable for theliabilities of these VIEs. These VIEs agree to accept such financial support and pledge to only use such support to develop their respectivebusinesses. To the extent permitted by law, the financial support the primary beneficiary provides to these VIEs may take the form of loans,borrowings or guarantees.Despite the lack of technical majority ownership, there exists a parent-subsidiary relationship between the primary beneficiary and their respectiveVIEs, through the irrevocable power of attorney agreements, whereby the VIE Shareholders effectively assigned all of the voting rights underlyingtheir equity interest in the respective VIEs to the primary beneficiary. Furthermore, pursuant to the loan agreements, exclusive option agreementsand equity interest pledge agreements, the primary beneficiary obtained effective control over the respective VIEs, through the ability to exercise allthe rights of the VIE Shareholders and therefore the power to govern the activities that most significantly impact the economic performance of theVIEs. The primary beneficiary demonstrates its ability and intention to continue to absorb substantially all the expected losses through the financialsupport confirmation letters. The primary beneficiary also demonstrates its ability to receive substantially all of the economic benefits of the VIEsthrough the exclusive business cooperation agreements. Thus, the Company consolidates these VIEs and their subsidiaries under SEC RegulationSX-3A-02 and ASC 810-10, Consolidation: Overall.In the opinion of the Company’s management and external legal counsels, the ownership structure of our VIEs are generally in compliance with thelocal laws or regulations that are currently in effect, and each of the agreements among the primary beneficiary, the VIEs and/or the VIE Shareholdersis valid, binding and enforceable, and do not and will not result in any violation of such laws or regulations that are currently in effect.F-24Table of ContentsSEA LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)1.ORGANIZATION (continued)(b)VIE structure (continued)Financial Support Confirmation Letters (continued)However, there are substantial uncertainties regarding the interpretation and application of current and future local laws and regulations.Accordingly, the Company cannot be assured that the local regulatory authorities will not ultimately take a contrary view to its opinion. If thecurrent ownership structure of the Company and its contractual arrangements with the VIEs are found to be in violation of any existing or futurelocal laws and regulations, the Company may be required to restructure its ownership structure and operations in certain countries to comply withthe changing and new local laws and regulations. To the extent that changes and new local laws and regulations prohibit the Company’s VIEarrangements from complying with the principles of consolidation, the Company would have to deconsolidate the financial position and results ofoperations of its VIEs. In the opinion of management, the likelihood of loss in respect of the Company’s current ownership structure or thecontractual arrangements with the VIEs is remote based on current facts and circumstances.(c)VIE disclosuresThe aggregate carrying amounts of the total assets and total liabilities of the VIEs as of December 31, 2020 were $356,057 and $494,014, respectively(2019: $598,727 and $714,034). There were no pledges or collateralization of the VIEs’ assets. Creditors of the VIEs have no recourse to the generalcredit of the primary beneficiaries of the VIEs, and such amounts have been parenthetically presented on the face of the consolidated balancesheets. The VIEs hold certain assets, including land, data servers and related equipment for use in their operations. The VIEs do not own anyfacilities except for the rental of certain office premises, warehouses and data centers from third parties under operating lease arrangements. Theyalso hold certain value-added technology licenses, registered copyrights, trademarks and registered domain names, including the official website,which are also considered as revenue-producing assets. However, none of such assets was recorded on the Company’s consolidated balancesheets as such assets were all acquired or internally developed with insignificant cost and expensed as incurred. In addition, the Company also hiresa sales and marketing as well as a research and development workforce for its daily operations and such costs are expensed when incurred. TheCompany has not provided any financial or other support that it was not previously contractually required to provide to the VIEs during the periodspresented.F-25Table of ContentsSEA LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)1.ORGANIZATION (continued)(c)VIE disclosures (continued)The following tables represent the financial information of the VIEs whom the Company does not have majority voting interest as of December 31,2019 and 2020 and for the years ended December 31, 2018, 2019 and 2020 before eliminating the intercompany balances and transactions between theVIEs and other entities within the group: As of December 31, 2019$ 2020$ ASSETS: Current assets: Cash and cash equivalents 111,831 94,502 Restricted cash 237,874 2,574 Accounts receivable, net 8,672 10,537 Prepaid expenses and other assets 25,586 40,822 Inventories, net 6,517 16,264 Short-term investments 30,324 9,287 Amounts due from related parties 286 – Amounts due from intercompanies(1) 34,432 44,928 Total current assets 455,522 218,914 Non-current assets: Property and equipment, net 54,092 35,453 Operating lease right-of-use assets, net 27,637 25,265 Intangible assets, net 300 492 Long-term investments 13,961 16,080 Prepaid expenses and other assets 14,312 11,905 Deferred tax assets 32,903 47,948 Total non-current assets 143,205 137,143 Total assets 598,727 356,057 F-26Table of ContentsSEA LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)1.ORGANIZATION (continued)(c)VIE disclosures (continued) As of December 31, 2019$ 2020$ LIABILITIES: Current liabilities: Accounts payable 11,274 16,183 Accrued expenses and other payables 93,146 91,186 Advances from customers 6,116 2,192 Amounts due to related parties 1,569 2,347 Short-term borrowings 1,258 – Operating lease liabilities 8,797 9,787 Deferred revenue 133,362 212,377 Income tax payable 5,850 595 Amounts due to intercompanies(1) 367,537 70,019 Total current liabilities 628,909 404,686 Non-current liabilities: Accrued expenses and other payables 1,357 1,784 Long-term borrowings 358 – Operating lease liabilities 20,129 16,527 Deferred revenue 49,325 55,200 Amounts due to intercompanies(1) 12,980 15,710 Unrecognized tax benefits 976 107 Total non-current liabilities 85,125 89,328 Total liabilities 714,034 494,014 For the Years Ended December 31, 2018$ 2019$ 2020$ Revenue - Third party customers 342,800 443,401 562,347 - Intercompanies 52,325 118,833 145,848 Net loss (67,816) (2,108) (30,435) For the Years Ended December 31, 2018$ 2019$ 2020$ Net cash generated from (used in) operating activities 67,275 (77,708) 134,060 Net cash used in investing activities (27,434) (69,181) (27,399)Net cash generated from (used in) financing activities 97,398 199,406 (13,023)(1)Amounts due from or to intercompanies consist of intercompany receivables or payables to the other companies within the group arising fromintercompany transactions, and funds advanced for working capital purpose.F-27Table of ContentsSEA LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(a)Basis of preparationThe accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S.GAAP”).(b)Principles of consolidationThe consolidated financial statements include the financial statements of the Company, its subsidiaries and the VIEs for which the Company or asubsidiary of the Company is the primary beneficiary. All significant intercompany transactions and balances between the Company, its subsidiariesand the VIEs are eliminated upon consolidation.(c)Use of estimatesThe preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions thataffect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financialstatements and the reported amounts of revenues and expenses during the period. Areas where management uses subjective judgment include, butare not limited to, revenue recognition, estimating the useful lives and impairment assessment of long-lived assets and goodwill, accounting for andimpairment assessment of investments, impairment assessment of accounts receivable and loans receivable, accounting for deferred income taxes,accounting for share-based compensation arrangements and accounting for the Company’s financial instruments where the Company is the issuer.Changes in facts and circumstances may result in revised estimates. Given the global economic climate and unforeseen effects from COVID-19pandemic, the process of estimation has become more challenging. Actual results could differ from those estimates, and as such, differences may bematerial to the consolidated financial statements.(d)Foreign currencyThe functional currency of the Company is the United States dollar (“$” or “USD”), whereas the functional currency of the Company’s subsidiariesand its VIEs are the respective local currencies as determined based on the criteria of ASC 830, Foreign Currency Matters. The Company uses theUSD as its reporting currency. Transactions denominated in foreign currencies are re-measured into the functional currency at the exchange ratesprevailing on the transaction dates. Foreign currency denominated financial assets and liabilities are re-measured at the balance sheet date exchangerate. Exchange gains and losses are included in foreign exchange gains and losses in the consolidated statements of operations.Assets and liabilities of the Company’s subsidiaries and its VIEs that has functional currencies other than USD are translated into USD at fiscalyear-end exchange rates. Income and expense items are translated at average exchange rates prevailing during the fiscal year. The resultingtranslation adjustments are recorded in other comprehensive income, a component of shareholders’ equity.F-28Table of ContentsSEA LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)(d)Foreign currency (continued)Exchange differences arising on monetary items that form part of the Company’s net investment in foreign operations are recognized initially in othercomprehensive income and accumulated under accumulated other comprehensive income in equity. The other comprehensive gain or loss arisingfrom exchange differences is reclassified from equity to profit or loss of the Company on disposal of the foreign operation.(e)Cash and cash equivalentsThe Company considers cash equivalents to be short-term, highly-liquid investments that are both readily convertible to cash and have a maturityof three months or less at the time of purchase. Cash and cash equivalents consist of cash on hand, demand deposits and funds placed with banksand other financial institutions which are unrestricted as to withdrawal and use.(f)Restricted cashRestricted cash comprise deposits pledged with banks as security in relation to utilization of the banks’ payment gateway and corporate cards,performance guarantees, monies received held in escrow in connection with the Company’s e-commerce business and advances received fromcustomers in connection with the Company’s digital financial services business that are restricted and not available for the Company’s use.(g)Accounts receivable, loans receivable and allowance for credit lossesAccounts receivable and loans receivable are carried at net realizable value. Loans principal and interest receivables are placed on non-accrualstatus when payments are 90 days past due contractually. When a loan principal and interest receivable is placed on non-accrual status, interestaccrual ceases. If the loan is non-accrual, the cost recovery method is used and cash collected is applied to first reduce the carrying value of theloan. Otherwise, interest income may be recognized to the extent cash is received. Loans principal and interest receivables may be returned toaccrual status when all of the borrower’s delinquent balances of loans principal and interest have been settled and the borrower continue to performin accordance with the loan terms.On January 1, 2020, the Company adopted the ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losseson Financial Instruments with the cumulative effect of adoption recorded as an adjustment to the beginning accumulated deficit. The amendmentsrequire the measurement of credit losses for financial assets measured at amortized cost based on historical experience, current conditions, andreasonable and supportable forecasts that affect the collectability of the reported amount.F-29Table of ContentsSEA LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)(g)Accounts receivable, loans receivable and allowance for credit losses (continued)The Company has also elected the practical expedients permitted under the new accounting standard, which amongst other things, allowed the useof fair value of collateral at the reporting date when recording the net carrying amount of the receivables and determining the allowance for creditlosses for a financial asset for which the repayment is expected to be provided substantially through the operation or sale of the collateral when theborrower is experiencing financial difficulty based on the Company’s assessment as of the reporting date (collateral-dependent financial asset).The Company has established a provision matrix that based on its historical credit loss experience, adjusted for forward-looking factors specific tothe receivable and economic environment. It reflects the probability-weighted outcome, time value of money and reasonable and supportableinformation that is available at the reporting date about past events, current conditions and forecasts of future economic conditions. The allowancesfor credit losses are calculated on an aggregate basis for various customer segments that are considered to have similar credit characteristics andrisk of loss. The above-mentioned provision matrix has also been used to determine allowances for credit losses for off-balance sheet loancommitments. An account receivable and loan receivable is written off in the period the receivable is deemed uncollectible.The adoption of the new accounting standard on January 1, 2020 does not result in a material adjustment to the beginning accumulated deficit.(h)InventoriesInventories which comprise mainly of merchandise products sold through the Company’s e-commerce business platform are valued at the lower ofcost and net realizable value.Costs incurred in bringing each product to its present location and condition are accounted at purchase cost on first-in-first-out basis.Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costsnecessary to make the sale.F-30Table of ContentsSEA LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)(i)Property and equipmentProperty and equipment is stated at cost, net of accumulated depreciation and/or accumulated impairment losses, if any.Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets as follows:- Computers3 years- Office equipment, furniture and fittings3 years- Leasehold improvementsOver the shorter of lease term or the estimated useful lives of the assets- Motor vehicles6 to 10 years- Warehouse equipment5 to 8 years- Land use right15 to 22 years- Building15 to 20 yearsFreehold land has unlimited useful life and therefore is not depreciated. The useful lives and methods of depreciation of property and equipment arereviewed at each financial year end and adjusted prospectively, if appropriate.Repair and maintenance costs are charged to expense as incurred, whereas the costs of betterments that extend the useful lives of property andequipment are capitalized as additions to the related assets. Retirements, sale and disposals of assets are recorded by removing the cost andaccumulated depreciation with any resulting gain or loss reflected in the consolidated statements of operations.Property and equipment that are purchased or constructed which require a period of time before the property and equipment are ready for theirintended use are accounted for as construction-in-progress. Construction-in-progress is recorded at acquisition cost, including installation costs.Construction-in-progress is transferred to specific property and equipment accounts and commences depreciation when these property andequipment are ready for their intended use.(j)GoodwillGoodwill represents the excess of the purchase consideration over the fair value of the identifiable tangible and intangible assets acquired andliabilities assumed from the acquired entity as a result of the Company’s acquisitions of interests in its subsidiary and consolidated VIEs. During themeasurement period, which does not exceed one year from the acquisition date, the Company may record adjustments to the assets acquired andliabilities assumed with the corresponding adjustment to goodwill. Upon conclusion of the measurement period, any adjustments are recorded in theconsolidated statements of operations.F-31Table of ContentsSEA LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)(j)Goodwill (continued)Goodwill is not amortized but is tested for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that itmight be impaired. In testing goodwill for impairment, the Company evaluates whether it is more likely than not that the fair value of a reporting unitis less than its carrying amount. If the qualitative assessment indicates that goodwill impairment is more likely than not, the Company applies a one-step quantitative test and record the amount of goodwill impairment as the excess of a goodwill allocated to the reporting unit’s carrying amountover its fair value, not to exceed the total amount of goodwill allocated to the reporting unit.No impairment of goodwill was recorded in the years ended December 31, 2019 and 2020.(k)Intangible assetsIntangible assets acquired through business combinations are recognized as assets separate from goodwill if they satisfy either the “contractual-legal” or “separability” criterion. Intangible assets arising from business combinations are measured at fair value upon acquisition. Other intangibleassets are carried at cost less accumulated amortization and any recorded impairment.Costs incurred in connection with the planning and implementation phases of the development of software for internal use are expensed. Costsincurred in the development phase are capitalized and amortized over the estimated useful life. Costs incurred internally in researching anddeveloping a software product are charged to expense as research and development costs prior to technological feasibility being established for theproduct. Once technological feasibility is established, all software costs are capitalized until the product is available for general release to customers.Technological feasibility is established upon completion of all the activities that are necessary to substantiate that the software product can beproduced in accordance with its design specifications, including functions, features, and technical performance requirements. None of such costswere capitalized for any of periods presented.Intangible assets with finite useful lives are amortized over the estimated economic lives of the intangible assets as follows:- Licensing feeOver the shorter of licensing period or the estimated useful lives of the intangibleassets- IP right1 to 6 years- Trademarks10 years- Technology6 years- Software3 to 6 years- Customer relationships3 to 8 years- Software platforms3 yearsThe useful lives and methods of amortization of intangible assets are reviewed at each financial year end and adjusted prospectively, if appropriate.F-32Table of ContentsSEA LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)(k)Intangible assets (continued)Software, customer relationships and software platforms are included in ‘Others’ in the Note 10 to the consolidated financial statements.(l)InvestmentsThe Company’s investments consist of available-for-sale investments, held-to-maturity investments, equity security investments and equity methodinvestments.In accordance with ASC 320, Investments - Debt Securities, the Company classifies the investments in debt securities as “held-to-maturity”,“trading” or “available-for-sale”, whose classification determines the respective accounting methods stipulated by ASC 320. Dividend and interestincome for all categories of investments in securities are included in earnings. Any realized gains or losses, if any, on the sale of the investments aredetermined on a specific identification method, and such gains and losses are reflected in earnings during the period in which gains or losses arerealized. The debt securities that the Company has positive intent and ability to hold to maturity are classified as held-to-maturity securities andstated at amortized cost. The securities that are bought and held principally for the purpose of selling them in the near term are classified as tradingsecurities and measured at fair value. Unrealized holding gains and losses for trading securities are included in earnings. Investments not classifiedas trading or as held-to-maturity are classified as available-for-sale investments. Available-for-sale investment is reported at fair value, withunrealized gains and losses recorded in accumulated other comprehensive income. Realized gains or losses are included in earnings during theperiod in which the gain or loss is realized.On January 1, 2020, the Company adopted the ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losseson Financial Instruments with the cumulative effect of adoption recorded as an adjustment to the beginning accumulated deficit. The amendmentseliminate the concept of other-than-temporary impairment and requires credit losses related to available-for-sale investments to be recorded throughan allowance for credit losses rather than as a reduction in the amortized cost basis of the investment. The Company compares the present value ofcash flows expected to be collected from the investment with the amortized cost basis of the security to determine if a credit loss exists. If thepresent value of cash flows expected to be collected is less than the amortized cost basis of the investment, a credit loss exists and an allowance forcredit losses are recorded for the credit loss, limited by the amount that the fair value is less than amortized cost basis. An available-for-saleinvestment is written off in the period the investment is deemed uncollectible. The adoption of the new accounting standard on January 1, 2020 doesnot result in a material adjustment to the beginning accumulated deficit.F-33Table of ContentsSEA LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)(l)Investments (continued)In accordance with ASC 321, Investments – Equity Securities, for investments in an investee over which the Company does not have significantinfluence, the Company carries the investment at fair value with unrealized gains and losses included in earnings. The Company has elected tomeasure its equity security investments without readily determinable fair value at cost minus impairment, if any, plus or minus changes resultingfrom observable price changes in orderly transactions for the identical or a similar investment of the same investee. The Company’s managementregularly evaluates the impairment of its equity security investments based on the performance and financial position of the investee as well asother evidence of estimated market values. Such evaluation includes, but is not limited to, reviewing the investee’s cash position, recent financing,projected and historical financial performance, cash flow forecasts and current and future financing needs. An impairment loss is recognized in theconsolidated statements of operations equal to the excess of the investment’s cost over its fair value at the balance sheet date of the reportingperiod for which the assessment is made. The fair value would then become the new cost basis of investment.Investments in equity investees represent investments in (a) entities in which the Company can exercise significant influence but does not own amajority equity interest or control and (b) limited partnership in which the Company holds a five percent or greater interest. Such investments areaccounted for using the equity method of accounting in accordance with ASC 323-10, Investments - Equity Method and Joint Ventures: Overall.Under the equity method, the Company initially records its investment at cost and prospectively recognizes its proportionate share of each equityinvestee’s net profit or loss into its consolidated statements of operations. The difference between the cost of the equity investee and the amount ofthe underlying equity in the net assets of the equity investee is recognized as equity method goodwill included in equity method investment on theconsolidated balance sheets. The Company evaluates its equity method investments for impairment under ASC 323-10. An impairment loss on theequity method investments is recognized in the consolidated statements of operations when the decline in value is determined to be other-than-temporary.The Company discontinues applying equity method if an investment (and additional financial supports to the investee, if any) has been reduced tozero. When the Company has other investments in the investee that have liquidation preferences more senior than the ordinary shares and theequity-method investment in the ordinary shares is reduced to zero, the Company continues to report its share of equity losses in the consolidatedstatement of operations, to the extent of and as an adjustment to the adjusted basis of the other investments in the investee. The order in which theequity losses are applied to the other investments follows the seniority of the other investments in the same investee.F-34Table of ContentsSEA LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)(m)Impairment of long-lived assetsThe Company evaluates its long-lived assets or asset groups, including intangible assets with finite lives, for impairment whenever events orchanges in circumstances (such as a significant adverse change to market conditions that will impact the future use of the assets) indicate that thecarrying amount of an asset or a company of long-lived assets may not be recoverable. When these events occur, the Company evaluates forimpairment by comparing the carrying amount of the assets to future undiscounted net cash flows expected to result from the use of the assets andtheir eventual disposition. If the sum of the forecasted undiscounted cash flows is less than the carrying amount of the assets, the Company wouldrecognize an impairment loss based on the excess of the carrying amount of the asset group over its fair value. Fair value is generally determined bydiscounting the cash flows expected to be generated by the assets, when the market prices are not readily available for the long-lived assets.(n)Fair value of financial instrumentsAvailable-for-sale investments are initially recognized at acquisition cost and subsequently remeasured at the end of each reporting period with thechange in fair value recognized in accumulated other comprehensive income. Convertible notes consist of 2017 Convertible Notes, 2023 ConvertibleNotes, 2024 Convertible Notes and 2025 Convertible Notes as defined in Note 14 of the consolidated financial statements. The 2017 ConvertibleNotes were carried at fair value. For the 2023 Convertible Notes, 2024 Convertible Notes and 2025 Convertible Notes, the liability component of theconvertible notes was initially measured at fair value and subsequently amortized to its redemption amount using the effective interest rate method.The Company, with the assistance of an independent third party valuation firm, determined the estimated fair value of its non-current available-for-sale investments and convertible notes that are recognized in the consolidated financial statements.(o)Revenue recognitionRevenue is recognized upon transfer of control of promised goods or services to customers in an amount that reflects the consideration to whichthe Company expects to be entitled to for those goods or services. Revenue is measured based on the amount of consideration that the Companyexpects to receive reduced by discounts, incentives and rebates. Revenue also excludes any amounts collected on behalf of third parties, includingsales taxes and indirect taxes.The Company evaluates revenue from services and sales of goods to determine if it controls such services and goods to be the principal (i.e., reportrevenues on a gross basis) or agent (i.e., report revenues on a net basis). The key indicators that the Company evaluates in determining grossversus net treatment include, but are not limited to, (i) which party is primarily responsible for fulfilling the promise to provide the specified good orservice; (ii) which party bears inventory risks before the specified good or service has been transferred to a customer; and (iii) which party hasdiscretion in establishing the price for the specified good or service.F-35Table of ContentsSEA LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)(o)Revenue recognition (continued)(i)Digital entertainment revenueThe Company distributes online games, including self-developed games and licensed games from game developers, through its PC andmobile based applications and certain app stores.The Company offers many ways for users to purchase in-game virtual items, including the SeaMoney and Shopee platform, other onlinepayment gateways, bank transfers, credit cards, mobile phone billing and prepaid cards, including its own prepaid cards, which are soldthrough agents. As the Company controls the service of providing games to the users, and it has a direct contractual arrangement with thepaying users and has the right to determine the price to be paid by such users, the gross proceeds collected from these channels representrevenue to be recognized by the Company and the amounts retained by these channels based on a predetermined percentage representcost of revenue to be recognized by the Company.Proceeds from these sales are initially recognized as “Advances from customers” and subsequently reclassified to “Deferred revenue”when the users make in-game purchases of the virtual currencies or virtual items within the games operated by the Company and the in-game purchases are no longer refundable. Deferred revenue recognized as revenue during the respective years ended December 31, 2019and December 31, 2020 was $450,394 and $998,956.For the licensed games, the Company records revenue inclusive of the royalties payable to game developers, which are based on revenue-sharing ratios, as it controls the service of providing the games to the users, and is primarily responsible to the customers and has latitudein establishing the pricing of the virtual items.Revenue is recognized over the performance obligation period. For purposes of determining the performance obligation period, theCompany has determined that an implied obligation exists to the paying users to continue providing access to the purchased virtual goodswithin the online games over an estimated delivery obligation period. Such delivery obligation period is determined in accordance with theestimated average lifespan of the virtual goods sold or estimated average lifespan of the paying users of the said games or similar games.F-36Table of ContentsSEA LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)(o)Revenue recognition (continued)(i)Digital entertainment revenue (continued)(a)Item-based revenue modelVirtual items have different lifespan patterns: time-based, consumable and durable. Time-based virtual items are items with a statedexpiration time, for which revenue is recognized ratably over the period based on the time unit of the virtual items. Consumablevirtual items are items that can be consumed by a specific user action and have limitations on repeated use. Revenue attributableto consumable virtual items is recognized upon consumption. Durable virtual items are items that provide the user with continuingbenefits over an extended period of time. Revenue attributable to durable virtual items is recognized ratably over their averagelifespan, which are estimated based on the users’ historical usage pattern and playing behaviors for the virtual items. TheCompany assesses the estimated average lifespan of the durable virtual items on a quarterly basis.(b)User-based revenue modelThe Company tracks paying users’ activeness within each game where the user-based revenue model is used to estimate payingusers’ average lifespan. Paying users are defined as inactive when they have reached a period of inactivity for which it isreasonable to believe that these users will not return to a specific game. The Company determines the inactive rate of these payingusers and revises the estimated paying users’ average lifespan on a quarterly basis.The Company believes the current revenue models provide reasonable depiction of the service transferred patterns to the customers andthey represent the best estimation of the time period the customers are likely to play the respective games. Determining the estimatedservice period is subjective and requires management’s judgment. Future users’ usage patterns and playing behavior may change anddiffer from the historical usage patterns and playing behavior, and therefore the estimated service period may change accordingly in thefuture.F-37Table of ContentsSEA LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)(o)Revenue recognition (continued)(ii)E-commerceThe Company’s e-commerce business (“Shopee”) charges its sellers on its marketplace a fixed rate commission fee based on grossmerchandise value in selected markets. Fees are charged when the transactions are completed and settled. Such commission fees chargedare recognized on a net basis.The Company also provides logistic services to end customers. Revenue from logistic services are recognized over time as the customersimultaneously receives and consumes the benefits provided by the Company’s performance as it performs.Shopee operates a customer loyalty program, where end users who purchase merchandises and participate in activities through Shopee’splatform are given Shopee coins which entitle them to offset future purchases, participate in activities and redeem vouchers throughShopee’s platform. A portion of the revenue attributable to Shopee coins is deferred until they are redeemed, used or expired.The Company charges its sellers advertising fees through its paid ads service on Shopee platform. The paid ads service allows the sellersto bid for keywords that match their product or service listing appearing in search or browser results on Shopee marketplace. Their productor service listing will show higher in search rankings when users search for their bid keywords. Sellers prepay for paid ads services and theadvertising income is recognized based on the number of clicks on the product or service listings during the service period.(iii)Digital financial servicesThe Company earns interest and fees from loans granted to customers. Interest and fees earned are recognized over the period of the loanbased on the effective interest method.The Company also earns commission from merchants when transactions are completed and settled through its digital financial servicesplatform. Such commission are generally determined as a percentage based on the value of the merchandise being sold by the merchants.Commission is recognized in the consolidated statements of operations at the time when the underlying transaction is completed.(iv)Rendering of servicesThe Company also recognizes revenue from other services when the services are rendered.F-38Table of ContentsSEA LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)(o)Revenue recognition (continued)(v)Sales of goodsThe Company recognizes revenue from sales of goods at the point in time that the customer obtains control of the goods, which generallyoccurs upon delivery to the customer.(p)Cost of revenueCost of revenue consists primarily of purchase price of inventories, depreciation expenses, amortization expenses, channel costs, royalty expenses,hosting charges, payroll related costs, bank transaction fees, cost of logistics and the other overhead expenses.(q)Advertising expenditureAdvertising expenditure are expensed as incurred and are included in sales and marketing expenses. As part of the advertising expenditure, salesincentives given to end users as a result of a concurrent sale are recognized as reductions of the corresponding consideration that the Companyexpects to receive. To the extent the sales incentives exceed the corresponding consideration that the Company expects to receive, the excess will berecorded in sales and marketing expenses.(r)Research and development expensesResearch and development expenses consist primarily of payroll and related personnel costs related to product development. Research anddevelopment expenses are expensed as incurred.(s)LeasesLeases are classified at the inception date as either a finance lease or an operating lease. As the lessee, a lease is a finance lease if any of thefollowing conditions exists: a) ownership is transferred to the lessee by the end of the lease term, b) there is a bargain purchase option, c) the leaseterm is at least 75% of the asset’s estimated remaining economic life, or d) the present value of the minimum lease payments at the beginning of thelease term is 90% or more of the fair value of the leased asset to the lessor at the inception date.Finance lease assets are included in property and equipment, net, and finance lease liabilities are included in accrued expenses and other payables,current and non-current.F-39Table of ContentsSEA LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)(s)Leases (continued)All other leases are accounted for as operating leases wherein rental payments are expensed on a straight-line basis over the periods of theirrespective leases. Operating leases (with an initial term of more than 12 months) are included in operating lease right-of-use (“ROU”) assets,operating lease liabilities (current), and operating lease liabilities (non-current) in the consolidated balance sheets. ROU assets represent theCompany’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease paymentsarising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of leasepayments over the lease term. The Company utilizes a market-based approach to estimate the incremental borrowing rate based on the informationavailable at commencement date in determining the present value of lease payments. The operating lease ROU asset also includes any leaseprepayments, reduced by lease incentives and accrued rent. The lease terms may include options to extend or terminate the lease when it isreasonably certain that the Company will exercise that option.The Company has lease agreements with lease and non-lease components, which are generally accounted for separately. In addition, leases with aninitial term of 12 months or less are not recorded on the consolidated balance sheets; the Company recognizes lease expense for these leases on astraight-line basis over the lease term. Certain lease agreements contain rent holidays and escalating rent are considered when determining thestraight-line rent expense to be recorded over the lease term. The lease term begins on the date of initial possession of the lease property forpurposes of recognizing lease incentives.(t)Income taxesThe Company accounts for income taxes using the liability method. Under this method, deferred tax assets and liabilities are determined based onthe difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the period inwhich the differences are expected to reverse. The Company records a valuation allowance against deferred tax assets if, based on the weight ofavailable evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of achange in tax rates is recognized in income in the period that includes the enactment date. The Company applies ASC 740, Accounting for IncomeTaxes, to account for uncertainty in income taxes. ASC 740 prescribes a recognition threshold a tax position is required to meet before beingrecognized in the financial statements.The Company has elected to classify interest and penalties related to unrecognized tax benefits, if and when required, as part of “income tax” in theconsolidated statements of operations.F-40Table of ContentsSEA LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)(u)Share-based compensationAll share-based compensation, including share options, restricted share awards, restricted share units and share appreciation rights under shareincentive plan are accounted for under ASC 718, Compensation - Stock Compensation, which requires that share-based awards granted toemployees to be measured at fair value and recognized as compensation expense over the requisite service period (which is generally the vestingperiod) in the consolidated statements of operations. The Company has elected to recognize compensation expense using the straight-line methodfor equity-classified share-based awards granted with service conditions that have a graded vesting schedule. Forfeitures are accounted for as theyoccur.The Company, with the assistance of an independent third party valuation firm, determined the estimated fair value of the share options using theBlack-Scholes pricing model (Note 15). (v)Loss per shareIn accordance with ASC 260, Earnings per Share, basic loss per share is computed by dividing net loss attributable to ordinary shareholders by theweighted average number of unrestricted ordinary shares outstanding during the year using the two-class method. Under the two-class method, netloss is allocated between ordinary shares and other participating securities based on their participating rights. Partially paid shares are included inthe computation of basic loss per share to the extent that these shares are entitled to dividends in proportion to the amount paid.Diluted loss per share is calculated by dividing net loss attributable to ordinary shareholders as adjusted for the effect of dilutive ordinaryequivalent shares, if any, by the weighted average number of ordinary and dilutive ordinary equivalent shares outstanding during the period.Ordinary equivalent shares consist of the ordinary shares issuable upon the conversion of the convertible notes using the if-converted method andordinary shares, including partially paid shares, issuable upon the exercise of the share options, using the treasury stock method, when the impact isdilutive. Ordinary share equivalents are excluded from the computation of diluted loss per share if their effects would be anti-dilutive.(w)Comprehensive lossComprehensive loss is defined as the decrease in equity of the Company during a period from transactions and other events and circumstancesexcluding transactions resulting from investments by owners and distributions to owners. Accumulated other comprehensive income of theCompany includes foreign currency translation adjustments related to the Company’s overseas subsidiaries and change in fair value of available-for-sale investments.F-41Table of ContentsSEA LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)(x)Segment reportingThe Company identifies a business as an operating segment if: i) it engages in business activities from which it may earn revenues and incurexpenses; ii) its operating results are regularly reviewed by the Chief Operating Decision Maker (“CODM”) to make decisions about resources to beallocated to the segment and assess its performance; and iii) it has available discrete financial information. The CODM reviews financial informationat the operating segment level to allocate resources and to assess the operating results and financial performance for each operating segment.The Company has three operating and reportable segments: digital entertainment, e-commerce and digital financial services. Accordingly, thefinancial statements include segment information which reflects the current composition of the reportable segments in accordance with ASC 280,Segment Reporting.(y)Employee benefits(i) Defined contribution planThe Company participates in the national pension schemes as defined by the laws of the jurisdictions in which it has operations.Contributions to defined contribution pension schemes are recognized as an expense in the period in which the related service isperformed.(ii) Employee leave entitlementEmployee entitlements to annual leave are recognized as a liability when they are accrued to the employees. The undiscounted liability forleave expected to be settled wholly before twelve months after the end of the reporting period is recognized for services rendered byemployees up to the end of the reporting period.(z)Recent accounting pronouncementsIn August 2020, the FASB issued ASU No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives andHedging - Contracts in Entity’s Own Equity (Subtopic 815-40) - Accounting For Convertible Instruments and Contracts in an Entity’s Own Equity(“ASU 2020-06”), which simplifies the accounting and disclosures for convertible instruments and contracts in an entity’s own equity. The Companywill adopt ASU 2020-06 in its first quarter of 2022. The Company is currently evaluating the impact ASU 2020-06 will have on its consolidatedfinancial statements.F-42Table of ContentsSEA LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)3.CONCENTRATION OF RISKS(a)Credit riskFinancial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cashequivalents, restricted cash, accounts receivable, other receivables, loans receivable, held to maturity investments, available-for-sale investments,and amounts due from related parties. As of December 31, 2019 and 2020, substantially all of the Company’s cash and cash equivalents were held atmajor financial institutions in the respective locations of our region. Management believes that these financial institutions are of high credit qualityand continually monitors the credit worthiness of these financial institutions.(b)Business, supplier, customer and economic riskThe Company participates in a relatively dynamic and competitive industries that are heavily reliant on operational excellence. The Companybelieves that changes in any of the following areas could have a material adverse effect on the Company’s future financial position, result ofoperations or cash flows:(i)Business risk - The Company derives a significant portion of its net revenues from its digital entertainment and e-commerce operations. Ifcompetitors introduce new online games or new marketplace platform that compete with, or surpass the online games or marketplaceplatform operated by the Company, the Company’s operating performance in its digital entertainment or e-commerce operations will beaffected.(ii)Supplier risk - The Company’s digital entertainment business license certain games from external game developers. The term of the gamelicense agreements with the game developers varies and is renewable upon both parties’ consent. There is no assurance that the Companywill be able to renew these game licenses. There is also no assurance that the Company will be able to source for new popular games. Evenif new popular games were successfully sourced, there is no assurance that the Company will be able to enter into commercially acceptableterms. The Company’s ecommerce and digital financial service businesses engages logistics service providers, payment channels and otherexternal parties as its service providers. No individual external game developer, external logistics services provider or other externalbusiness partner accounted for more than 10% of the Company’s net cost of revenue for the years ended December 31, 2018, 2019 and2020.(iii)Customer risk - No individual customer accounted for more than 10% of net revenues for the years ended December 31, 2018, 2019 and2020.(iv)Political, economic and social uncertainties - The Company’s businesses could be adversely affected by the varying political, economicand social uncertainties in the diverse markets that it operates in. In addition, there is no assurance that the Company is able to operateseamlessly across the borders as a single market.(v)Regulatory restrictions - Certain laws, rules and regulations currently prohibit foreign ownership of companies in some of the marketswhere the Company operates. As a result, the Company consolidates these entities through the use of VIE agreements.F-43Table of ContentsSEA LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)3.CONCENTRATION OF RISKS (continued)(c)Currency convertibility riskA significant portion of the Company’s revenue and expenses are denominated in currencies subject to exchange control. If there are foreigncurrency requirements, the Company may need to convert a portion of its net revenues into other currencies to meet its foreign currencyobligations. Currently, in Taiwan, a single remittance by a company for an amount over $1 million shall be reported and documents supporting theaccuracy of such report shall be provided to the bank handling such remittance before the remittance is conducted. In addition, remittances by acompany whose annual aggregate amount exceeds $50 million may not be processed without the approval of the Central Bank of the Republic ofChina (Taiwan). In Vietnam, exchanging Vietnamese dong into foreign currency must be conducted at a licensed credit institution such as a licensedcommercial bank. Conversion of Thai baht to another currency is subject to regulations promulgated by the Ministry of Finance and Bank ofThailand. Conversion of Indonesian rupiah into any foreign currency that exceeds certain specific threshold is required to have an underlyingtransaction and supported by underlying transaction documents. There is no assurance that the Company will be able to convert such localcurrencies into U.S. dollars or other foreign currencies to pay dividends or for other purposes on a timely basis or at all.(d)Foreign currency riskThe Company operates in multiple jurisdictions, which exposes it to the effects of fluctuations in currency exchange rates. The Company earnsrevenue denominated in Indonesian rupiah, New Taiwan dollars, Vietnamese dong, Thai baht, Philippine pesos, Malaysian ringgit, Singapore dollars,Brazilian real, U.S. dollars, Indian rupee and Mexican peso, among other currencies. Whereas it generally pays license fees to game developers inU.S. dollars and incur expenses for employee compensation and other operating expenses in the local currencies in the jurisdictions in which itoperates. Fluctuations in the exchange rates between the various currencies that the Company uses could result in expenses being higher andrevenue being lower than would be the case if exchange rates were stable.F-44Table of ContentsSEA LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)4.ACQUISITIONS AND DISPOSALS(a)AcquisitionsDuring the year ended December 31, 2020, the Company acquired three companies and their underlying subsidiaries for an aggregate considerationof $263,074. As a result, these companies were consolidated as subsidiaries of the Company from the date of acquisition. The acquisitions supportthe growth of the Company.The allocation of the purchase price as of the date of acquisition is summarized as follows: _$ Cash and cash equivalent 94,587 Prepaid expense and other assets 16,290 Loans receivable, net of allowance for credit losses of $26,410 196,904 Long-term investments 34,360 Identifiable intangible assets (i) 27,376 Others 6,635 Total assets acquired 376,152 Accrued expenses, payables and liabilities (237,987)Borrowings (29,923)Others (2,044)Total liabilities assumed (269,954)Net assets acquired 106,198 Fulfilled by: Cash consideration 263,074 Fair value of non-controlling interests (ii) 39,594 Fair value of previously held interests (iii) 4,103 Goodwill 200,573 (i)Acquired intangible assets had estimated amortization periods not exceeding eight years.(ii)Fair value of non-controlling interests was estimated with reference to the recent purchase price per share as of the acquisition date.(iii)Fair value of previously held interests was estimated based on the purchase consideration payable to similar instruments and recorded a gain of$3,003 in the consolidated statements of operations for the year ended December 31, 2020.The goodwill, which is not tax deductible, is mainly attributable to synergies expected to be achieved from the acquisitions. The goodwill isallocated within the Digital Entertainment and Digital Financial Services segment.F-45Table of ContentsSEA LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)4.ACQUISITIONS AND DISPOSALS (continued)(a)Acquisitions (continued)The revenue and results since the acquisition date included in the consolidated statement of comprehensive loss for the year ended December 31,2020 were insignificant. The Company’s revenue and results for the year would not be materially different should the acquisitions have otherwiseoccurred on January 1, 2020.The related transaction costs of the acquisitions were not material to the Company’s consolidated financial statements.(b)DisposalsDuring the year ended December 31, 2020, the Company lost control over certain subsidiaries. As a result, the Company derecognized goodwill of$15,247 and recognized a gain of disposal of $62,115 in the consolidated statements of operations as “Investment gain, net”, which includes gainfrom remeasurement of remaining interest of $37,083. The remaining interest in a former subsidiary was measured at fair value, estimated withreference to the recent selling price per share as of the disposal date and considered a related party after deconsolidation.5.ACCOUNTS RECEIVABLE, NETAccounts receivable and allowance for credit losses consist of the following: December 31, 2019$ 2020$ Accounts receivable 191,118 370,977 Allowance for credit losses (4,083) (7,978) 187,035 362,999 As of December 31, 2019 and 2020, all accounts receivable were due from third party customers.F-46Table of ContentsSEA LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)5.ACCOUNTS RECEIVABLE, NET (continued)An analysis of the allowance for credit losses is as follows: _$ Balance at January 1, 2018 1,830 Charged to expenses 2,205 Reversal (47)Write-off of accounts receivable (1,588)Balance at December 31, 2018 2,400 Charged to expenses 4,687 Reversal (1,431)Write-off of accounts receivable (1,537)Exchange differences (36)Balance at December 31, 2019 4,083 Charged to expenses 5,155 Write-off of accounts receivable (1,415)Exchange differences 155 Balance at December 31, 2020 7,978 Additions to the Company’s allowance for credit losses were recorded within general and administrative expenses.F-47Table of ContentsSEA LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)6.PREPAID EXPENSES AND OTHER ASSETS December 31, 2019$ 2020$ Current: Deferred channel costs 232,384 441,873 Employee loans and advances 2,175 3,226 Other receivables 211,244 459,478 Prepaid cost of revenue, sales and marketing expense and others 41,311 69,658 Security deposits 1,902 7,008 Tax receivable 46,171 53,962 Others – 19,024 535,187 1,054,229 Non-current: Deferred channel costs 29,162 65,446 Other receivables 4,849 1,421 Prepaid licensing fee 5 6,642 Prepayment for purchase of property and equipment (including renovation-in-progress) 8,006 91,788 Security deposits 22,476 33,476 Others 1,186 6,031 65,684 204,804 7. LOANS RECEIVABLE, NETLoans receivable represents loans granted to commercial and consumer customers. The Company monitors credit quality for all loans receivable on arecurring basis by evaluating the customer’s prior repayment history available internally and external sources information, where applicable. The Companyuses delinquency status and trends to assist in making new and ongoing credit decisions, and to plan our collection practices and strategies. The followingtable presents the loans receivable by each of the loan portfolio: December 31, 2019$ 2020$ Commercial – 183,710 Consumer – 259,860 – 443,570 Allowance for credit losses – (40,484) – 403,086 F-48Table of ContentsSEA LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)7.LOANS RECEIVABLE, NET (continued)The following table is a summary of the delinquency status of the loans receivable by year of origination: As of December 31, 2020 Year of origination Commercial 2020$ 2019$ 2018$ 2017$ 2016$ Prior$ Total$ Delinquency: Current 121,586 22,746 11,949 11,354 2,554 361 170,550 Past due - Less than 30 days 4,188 358 243 263 11 1 5,064 - 31 to 60 days 2,420 399 112 77 39 2 3,049 - 61 to 90 days 1,363 – 250 175 12 – 1,800 - More than 90 days 2,024 356 429 144 96 198 3,247 131,581 23,859 12,983 12,013 2,712 562 183,710 Consumer Delinquency: Current 208,380 16,812 12,792 7,554 1,883 60 247,481 Past due - Less than 30 days 2,609 638 896 140 62 – 4,345 - 31 to 60 days 986 1,019 1,890 759 179 – 4,833 - 61 to 90 days 901 206 237 74 40 – 1,458 - More than 90 days 1,088 261 111 47 69 167 1,743 213,964 18,936 15,926 8,574 2,233 227 259,860 F-49Table of ContentsSEA LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)7.LOANS RECEIVABLE, NET (continued)An analysis of the loans receivable’s allowance for credit losses by portfolio segment is as follows: Commercial$ Consumer$ Total$ Balance at January 1, 2018, December 31, 2018 and December 31, 2019 – – – Acquisition of subsidiaries 17,056 9,354 26,410 Charged to expenses 26,063 25,005 51,068 Write-off of loans receivable (14,801) (22,575) (37,376)Exchange differences 6 376 382 Balance at December 31, 2020 28,324 12,160 40,484 Additions to the Company’s allowance for credit losses were recorded within general and administrative expenses.F-50Table of ContentsSEA LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)8.PROPERTY AND EQUIPMENT, NET December 31, 2019$ 2020$ Computers 339,221 522,108 Office equipment, furniture and fittings 24,883 31,613 Leasehold improvements 129,298 162,032 Motor vehicles 14,624 6,184 Warehouse equipment 3,464 7,296 Land 20,598 22,708 Building 814 2,093 Construction-in-progress – 973 532,902 755,007 Less: accumulated depreciation (214,282) (368,606) 318,620 386,401 Depreciation expenses recognized for each of the years ended December 31, 2018, 2019 and 2020 were included in the following captions: For the year ended December 31, 2018$ 2019$ 2020$ Cost of revenue 31,203 80,245 118,691 Sales and marketing expenses 3,712 3,200 4,965 General and administrative expenses 19,009 31,282 41,384 Research and development expenses 978 2,056 4,027 54,902 116,783 169,067 No impairment loss had been recognized during the years ended December 31, 2018, 2019 and 2020, respectively.F-51Table of ContentsSEA LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)9.LEASESThe Company has entered into commercial operating leases for the use of offices and warehouses as lessee. These leases have original terms not exceeding10 years. These leases have varying terms, escalation clauses and renewal rights.Information pertaining to lease amounts recognized in our consolidated financial statements is summarized as follows: For the year ended December 31, 2019$ 2020$ Operating lease cost: Operating lease cost 51,403 73,273 Short-term lease cost 4,669 6,451 56,072 79,724 Supplemental cash flow information Operating cash flows from operating leases 41,237 72,756 Right-of-use obtained in exchange for new operating lease liabilities 99,129 95,020 Weighted-average remaining lease term (years) Operating leases 4.43 3.91 As of December 31, 2019 and 2020, the weighted-average discount rate for operating leases was 9.17% and 8.40%, respectively. Operatingleases As of December 31, 2020: _$_ Maturities of lease liabilities 2021 77,895 2022 80,851 2023 72,352 2024 34,526 2025 23,712 After 2025 9,835 Total lease payments 299,171 Less: Imputed interest (46,795)Present value of lease liabilities 252,376 As of December 31, 2019 and 2020, the Company has additional operating leases, primarily for offices, that have not yet commenced of $12,968 and $30,404respectively, with lease terms not exceeding 5 years.F-52Table of ContentsSEA LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)10.INTANGIBLE ASSETS, NETThe following table presents the Company’s intangible assets as of the respective balance sheet dates: Licensing fee$ IP right$ Trademarks$ Technology$ Others$ Total$ Balance at January 1, 2019 1,568 124 9,077 – 2,118 12,887 Additions 6,045 – – – 838 6,883 Amortization expense (2,653) (124) (1,068) – (1,004) (4,849)Written-off – – – – (2) (2)Exchange differences 85 – – – 16 101 Balance at January 1, 2020 5,045 – 8,009 – 1,966 15,020 Acquisition of subsidiaries – 7,400 – 15,200 4,776 27,376 Additions 2,509 9,930 – – 2,187 14,626 Disposal of a subsidiary – – – – (5) (5)Impairment (471) (5,160) – – (82) (5,713)Amortization expense (3,150) (3,214) (1,068) (2,322) (1,940) (11,694)Written-off – – – – (162) (162)Exchange differences 13 186 – – 126 325 Balance at December 31, 2020 3,946 9,142 6,941 12,878 6,866 39,773 F-53Table of ContentsSEA LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)10.INTANGIBLE ASSETS, NET (continued)The estimated aggregate amortization expenses for each of the five succeeding fiscal years and thereafter are as follows: Licensing fee$ IP right$ Trademarks$ Technology$ Others$ Total$ 2021 2,375 4,964 1,068 2,533 1,893 12,833 2022 980 1,139 1,068 2,533 1,604 7,324 2023 398 1,139 1,068 2,533 1,015 6,153 2024 193 1,139 1,068 2,533 592 5,525 2025 – 761 1,068 2,533 573 4,935 Thereafter – – 1,601 213 1,189 3,003 3,946 9,142 6,941 12,878 6,866 39,773 During the years ended December 31, 2018, 2019 and 2020, the Company determined that the carrying amount related to an intellectual property right (“IPright”) was not recoverable due to changes in market environment and therefore, impairment loss of $5,054, nil and $5,160, respectively had been recognizedin the consolidated statements of operations as “General and administrative expenses”.F-54Table of ContentsSEA LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)11.INVESTMENTS(a)Short-term investmentsHeld to maturity investmentsThe Company’s short-term held to maturity investments comprise time deposits placed with financial institutions with maturity of more than threemonths, medium-term notes and sovereign bonds with maturity of less than twelve months. The carrying amount of the Company’s short-term depositswas $30,324 and $19,523 as of December 31, 2019 and 2020, respectively.The carrying amount of the Company’s medium-term notes and sovereign bonds was nil and $8,807 as of December 31, 2019 and 2020, respectively. Noallowance for credit loss had been recognized during the years ended December 31, 2018, 2019 and 2020, respectively.Available-for-sale investmentsThe Company’s short-term available-for-sale investments comprise convertible loan, exchangeable loan and corporate bonds with maturity of less thantwelve months. The carrying amount of the Company’s available-for-sale investments was $72,000 and $21,769 as of December 31, 2019 and 2020,respectively.No allowance for credit loss had been recognized during the years ended December 31, 2018, 2019 and 2020, respectively. The net unrealized fair valuegain of nil, nil and $910 related to the short-term available-for-sale investments had been recognized in the consolidated statements of comprehensiveloss as “Other comprehensive income” during the years ended December 31, 2018, 2019 and 2020, respectively.Quoted equity securities investmentsThe Company’s quoted equity securities investments comprise of marketable securities and carrying amount was nil and $76,000 as of December 31, 2019and December 31, 2020. The unrealized fair value loss of nil, nil and $24,150 related to the marketable securities had been recognized in the consolidatedstatements of operations as “Investment gain (loss), net” during the year ended December 31, 2018, 2019 and 2020, respectively.(b) Long-term investmentsHeld to maturity investmentsThe Company’s long-term held to maturity investments comprise time deposits placed with financial institutions and sovereign bonds with maturity ofmore than twelve months. The carrying amount of the Company’s long-term time deposits was $216 and nil as of December 31, 2019 and 2020,respectively.The carrying amount of the Company’s sovereign bonds was nil and $68,854 as of December 31, 2019 and 2020, respectively. No allowance for credit losshad been recognized during the years ended December 31, 2018, 2019 and 2020, respectively.F-55Table of ContentsSEA LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)11. INVESTMENTS (continued)(b) Long-term investments (continued)Available-for-sale investmentsThe Company’s long-term available-for-sale investments comprise convertible loan and corporate bonds with maturity of more than twelve months. Thecarrying amount of the Company’s long-term available-for-sale investments was $56,418 and $5,276 as of December 31, 2019 and 2020, respectively. Thenet unrealized fair value gain of $18,269, net unrealized fair value loss of $12,869 and $5,303 related to the long-term available-for-sale investments hadbeen recognized in the consolidated statements of comprehensive loss as “Other comprehensive income” during the years ended December 31, 2018,2019 and 2020, respectively. An impairment loss of $144, $1,087 and $51,000 had been recognized during the years ended December 31, 2018, 2019 and2020 respectively.The Company does not intend to sell these investments and it is not more likely than not that the Company will be required to sell these investmentsbefore recovery of their amortized cost bases.Equity securitiesThe carrying amount of the Company’s equity security investments was $21,665 and $21,419 as of December 31, 2019 and 2020, respectively. Animpairment loss of $710, nil and $6,845 had been recognized during the years ended December 31, 2018, 2019 and 2020, respectively.F-56Table of ContentsSEA LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)11. INVESTMENTS (continued)(b) Long-term investments (continued)Investment in equity investeesSet out below are movement of the investment in equity investees during the years ended December 31, 2018, 2019 and 2020.--$ Balance at January 1, 20188,740Additions24,872Share of results(3,066)Share of other comprehensive loss(1,097)Distribution from investment(578)Impairment(2,562)Balance at December 31, 201826,309 Additions13,787Share of results(3,239)Share of other comprehensive loss(315)Distribution from investment(453)Disposal(523)Impairment(68)Balance at December 31, 201935,498 Additions12,661Retained interest in a former subsidiary49,782Share of results721Share of other comprehensive income874Distribution from investment(1,210)Impairment(3,393)Balance at December 31, 202094,933F-57Table of ContentsSEA LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)12.ACCRUED EXPENSES AND OTHER PAYABLESThe components of accrued expenses and other payables are as follows: December 31, 2019$ 2020$ Current: Accrued cost of revenue and sales and marketing expenses 242,268 598,133 Accrued interest for convertible notes 1,374 3,203 Accrued office-related operating expenses 2,745 2,506 Business and other taxes payables 19,345 52,568 Other payables 92,590 60,911 Escrow payables 513,864 1,028,542 Accrued payroll and welfare expenses 65,969 156,725 Payables and accruals for purchases of property and equipment 18,020 14,889 Deposits payable – 75,012 Finance lease liability 1,953 52 Others 22,677 40,920 980,805 2,033,461 Non-current: Finance lease liability 5,309 85 Others 20,493 36,074 25,802 36,159 13.BORROWINGS December 31, 2019$ 2020$ Current 1,258 – Non-current 358 – 1,616 – The loans are unsecured and bears the following interest rate and repayment term:2019 2020 Interest rate (%) per annum8.00 to 12.69 _– Repayment dateFrom October 2020 toAugust 2021 _– F-58Table of ContentsSEA LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)14.CONVERTIBLE NOTES December 31, 2019$ 2020$ Current: 2017 Convertible Notes 29,481 – 29,481 – Non-current: 2023 Convertible Notes 453,215 41,263 2024 Convertible Notes 903,117 916,560 2025 Convertible Notes – 882,583 1,356,332 1,840,406 (a)2017 Convertible NotesDuring the year ended December 31, 2017, the Company issued the convertible promissory notes (the “2017 Convertible Notes”), in the aggregateprincipal amount of $675,000 at an interest rate of 5% per annum, compounded annually on the unconverted and unpaid principal amount until the first tooccur of (i) the maturity date, subject to further extension at investors’ election, (ii) the last day of the lockup period related to the Initial Public Offering(“IPO”), (iii) the date of any conversion of the convertible promissory note in full, and (iv) the date of any other repayment or redemption of theconvertible promissory note in full. The 2017 Convertible Notes will mature on their respective third anniversary dates.During the years ended December 31, 2019 and 2020, certain noteholders had converted the outstanding principal amount of the 2017 Convertible Notestotalling $615,000 and $10,000 into Class A ordinary shares. The 2017 Convertible Notes had been fully converted into Class A ordinary shares of theCompany during the year ended December 31, 2020.F-59Table of ContentsSEA LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)14.CONVERTIBLE NOTES (continued)(b)2023 Convertible Notes, 2024 Convertible Notes and 2025 Convertible NotesThe Company also issued the following convertible notes and the terms are as follow:2023 Convertible Notes2024 Convertible Notes2025 Convertible NotesIssuance dateJune 18, 2018November 18, 2019May 22, 2020Maturity dateJuly 1, 2023December 1, 2024December 1, 2025Principal amount$575,000$1,150,000$1,150,000Interest rate2.25%1.00%2.375%Initial conversion rate50.5165 American Depositary Shares (“ADSs”)per $1 principal amount, equivalent to $19.80 per ADS19.9475 ADSs per $1principal amount, equivalentto $50.13 per ADS11.0549 ADSs per $1principal amount, equivalent to $90.46 per ADSAgreed conversion dateJanuary 1, 2023June 1, 2024September 1, 2025The 2023 Convertible Notes, 2024 Convertible Notes and 2025 Convertible Notes holders (the ‘Holders’) have the right, at their option, to convert theoutstanding principal amount of the convertible notes, in whole or in part in integral multiples of $1 principal amount (i) upon satisfaction of one or moreof the conversion conditions as defined in the indenture prior to the close of business day immediately preceding the agreed conversion date; or (ii)anytime on or after the agreed conversion date until the close of business on the second scheduled trading day immediately preceding the maturity date(the “Conversion Option”).The conversion is subject to the anti-dilution and make-whole fundamental change adjustments. Upon conversion, the Company has the right, at itsoption, to pay or deliver, either cash, ADSs, or a combination of cash and ADSs to the Holders.If certain events of default, changes in tax laws of the relevant taxing jurisdiction or fundamental change, optional redemption or clean up redemption asdefined in the indenture were to occur, of which the optional redemption and clean up redemption only applies to the 2024 Convertible Notes and 2025Convertible Notes, the outstanding obligations under the respective convertible notes could be immediately due and payable (the “ContingentRedemption Options”).The Company evaluated the Conversion Option and Contingent Redemption Options in accordance with ASC 815 to determine if these features requirebifurcation. The Conversion Option was not required to be bifurcated because it was indexed to the Company’s ADSs and meets all additionalconditions for equity classification. The Contingent Redemption Options were not required to be bifurcated because they were considered to be clearlyand closely related to the debt host, as the convertible notes were not issued at a substantial discount and are redeemable at par.F-60Table of ContentsSEA LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)14.CONVERTIBLE NOTES (continued)(b)2023 Convertible Notes, 2024 Convertible Notes and 2025 Convertible Notes (continued)The 2023 Convertible Notes, 2024 Convertible Notes and 2025 Convertible Notes were accounted for under ASC 470-20 Cash Conversion Subsections asfollow: 2023 ConvertibleNotes 2024 ConvertibleNotes 2025 ConvertibleNotes Liability component $410,926 $897,918 $856,635 Effective interest rate 9.38% 6.03% 8.21%Equity component $152,714 $240,582 $284,727 Debt issuance cost, allocated in proportion to the allocation of proceeds $11,360 $11,500 $8,638 The liability component was initially measured at fair value and subsequently amortized to its redemption amount using the effective interest method.The residual value was allocated to the equity component, classified within “Additional Paid-up Capital” and not subsequently remeasured. Thefollowing table presents the carrying amount of the liability components of the 2023 Convertible Notes, 2024 Convertible Notes and 2025 ConvertibleNotes: December 31, 2019 December 31, 2020 2023ConvertibleNotes$ 2024ConvertibleNotes$ 2025ConvertibleNotes$ Total$ 2023ConvertibleNotes$ 2024ConvertibleNotes$ 2025ConvertibleNotes$ Total$ Principal 575,000 1,150,000 – 1,725,000 49,000 1,112,320 1,149,500 2,310,820 Less: unamortizedissuance cost anddebt discount (121,785) (246,883) – (368,668) (7,737) (195,760) (266,917) (470,414)Net carrying amount 453,215 903,117 – 1,356,332 41,263 916,560 882,583 1,840,406 F-61Table of ContentsSEA LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)14.CONVERTIBLE NOTES (continued)(b)2023 Convertible Notes, 2024 Convertible Notes and 2025 Convertible Notes (continued)During the years ended December 31, 2018, 2019 and 2020, the Company recognized total interest expense for coupon interest of $6,936, $14,312 and$35,527, respectively and amortization of discount on the liability component amounted to $14,154, $33,334 and $88,198, respectively.As of December 31, 2019 and 2020, the if-converted value of 2023 Convertible Notes exceeded the principal amount by $593,270 and $443,710,respectively. As of December 31, 2020, the if-converted value of 2024 Convertible Notes and 2025 Convertible Notes exceeded the principal amount by$3,304,202 and $1,379,949, respectively.Capped call transactionsIn connection with the offering of 2024 Convertible Notes and 2025 Convertible Notes, the Company entered into separately negotiated capped calltransactions with certain counterparties (collectively, the “Capped Calls”). The details of the Capped Calls are as follows: 2024 ConvertibleNotes 2025 ConvertibleNotes Initial strike price per share $50.13 $90.46 Initial cap price per share $70.36 $136.54 The Capped Calls are generally intended to reduce or offset the potential economic dilution to our Class A ordinary shares upon any conversion of the2024 Convertible Notes and 2025 Convertible Notes, respectively, with such reduction or offset, as the case may be, subject to a cap based on the capprice. As the Capped Calls are considered indexed to the Company’s own stock and are equity classified, they are recorded in shareholders’ equity andare not accounted for as derivative. The costs of $97,060 and $135,700 incurred in connection with the Capped Calls of the 2024 Convertible Notes and2025 Convertible Notes, respectively, were recorded as reductions to additional paid-in capital. Capped Calls are excluded from the calculation of dilutedearnings per share, as they would be antidilutive under treasury stock method.(c)Exchange and conversion of Convertible NotesDuring the year ended December 31, 2020, a total principal amount of $564,180 Convertible Notes were exchanged or converted by certain Holders. Theseexchanges or conversions were satisfied through cash, or Class A ordinary shares, or a combination of cash and Class A ordinary shares settlement.Subsequent to December 31, 2020, certain Holders converted a total principal amount of $126,543 Convertible Notes. These conversions were satisfiedthrough Class A ordinary shares settlement or a combination of cash and Class A ordinary shares settlement.The exchange and conversion completed during the year ended December 31, 2020 resulted in a loss on debt extinguishment of $24,400 recorded in theconsolidated statements of operations as “Interest expense”.F-62Table of ContentsSEA LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)15.SHARE BASED COMPENSATIONThe Company amended its 2009 share incentive plan (the “Plan”) in July 2019. Under the Plan, the Company may grant options, restricted share award(“RSA”), restricted share unit (“RSU”) or share appreciation right (“SAR”) to its officers, employees, directors and other eligible persons (collectively knownas “Eligible Persons”) of up to 83,000,000 Class A ordinary shares. The Plan is administered by an authorized administrator appointed by the Board ofDirectors of the Company set forth in the Plan (the “Plan Administrator”).The maximum number of shares which may be issued pursuant to all awards under the Plan will increase on January 1 of each of 2019, 2020, 2021 and 2022 by5% of the total number of ordinary shares of all classes of the Company outstanding on that day immediately before such annual increase pursuant to thePlan. With effect on January 1, 2019, July 25, 2019, January 1, 2020 and January 1, 2021, the maximum number of shares which may be issued pursuant to allawards under the Plan increased to 100,129,938, 103,129,938, 123,292,170 and 148,888,743 Class A ordinary shares.During the years ended December 31, 2019 and 2020, the Company granted 15,327,884 options, 6,249,313 RSUs and 82,722 SARs, and 5,809,024 options,5,034,735 RSUs and 86,149 SARs, respectively to the Eligible Persons. All options granted have a contractual term of ten years. The options vest accordingto the stated vesting period in the grantee’s option agreement. The RSUs and SARs generally vest 25% on the first anniversary year from the stated vestingcommencement date and the remaining 75% will vest in 12 substantially equal quarterly instalments.F-63Table of ContentsSEA LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)15.SHARE BASED COMPENSATION (continued)(a)Option granted to Eligible PersonsThe following table summarizes the Company’s share option activity under the Plan: Number ofoptions Weightedaverageexerciseprice Weightedaverageremainingcontractualterm Aggregateintrinsic value _$_ Years _$_ Outstanding, January 1, 2018 11,653,513 5.11 Granted 26,500,000 15.00 Exercised (2,117,647) 2.16 Forfeited (328,984) 14.03 Outstanding, December 31, 2018 35,706,882 12.54 8.38 58,007 Vested and expected to vest at December 31, 2018 35,706,882 12.54 Exercisable as of December 31, 2018 8,748,351 5.25 6.03 56,918 Outstanding, January 1, 2019 35,706,882 12.54 Granted 15,327,884 15.00 Exercised (3,736,976) 5.58 Forfeited (109,236) 14.24 Outstanding, December 31, 2019 47,188,554 13.89 8.18 1,242,496 Vested and expected to vest at December 31, 2019 47,188,554 13.89 Exercisable as of December 31, 2019 19,664,736 12.35 7.35 548,035 Outstanding, January 1, 2020 47,188,554 13.89 Granted 5,809,024 18.59 Exercised (5,486,180) 11.29 Forfeited (45,678) 14.09 Outstanding, December 31, 2020 47,465,720 14.76 7.57 8,747,373 Vested and expected to vest at December 31, 2020 47,465,720 14.76 Exercisable as of December 31, 2020 25,298,368 13.73 7.03 4,688,260 The aggregate intrinsic value is calculated to be the difference between the exercise price of the underlying awards and the fair value of theunderlying stock at each reporting date, for those awards that have an exercise price below the estimated fair value of the Company’s ordinaryshares.F-64Table of ContentsSEA LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)15.SHARE BASED COMPENSATION (continued)(a)Option granted to Eligible Persons (continued)The Company calculated the estimated fair value of the options on the respective grant dates using the Black-Scholes option pricing model with thefollowing assumptions. Granted in 2018 Granted in 2019 Granted in 2020 Risk-free interest rates 2.75% – 2.92% 2.34% – 2.68% 0.39% – 1.66%Expected term 5 – 7 years 5.5 – 8.5 years 5.5 – 7.5 yearsExpected volatility 33.3% – 35.2% 33.0% – 35.0% 32.4% – 33.7%Expected dividend yield – – –Fair value of share options $2.52 – $3.52 $4.58 – $13.59 $13.81 – $50.58The Black-Scholes option pricing model was applied in determining the estimated fair value of the share options granted to Eligible Persons. Themodel requires the input of highly subjective assumptions including the estimated expected stock price volatility and the expected term of the optionfor which employees are likely to exercise their share options. The risk-free rate for periods within the contractual life of the option is based on theUSD swap curve at the time of grant. The Company has used the simplified method to determine the expected term due to insufficient historicalexercise data to provide a reasonable basis to estimate expected term. The Company’s management is ultimately responsible for the determination ofthe estimated fair value of its ordinary shares.The aggregate grant date fair value of the outstanding options was determined to be $495,314 as of December 31, 2020 and such amount shall berecognized as compensation expenses using the straight-line method for all employee share options granted. The weighted-average grant-date fairvalue of share options granted during the years of December 31, 2018, 2019 and 2020 were $3.02, $12.05 and $37.86, respectively. The total fair valueof share options vested during the years ended December 31, 2018, 2019 and 2020 was $22,390, $44,688 and $88,114, respectively. The aggregateintrinsic value of options exercised during the years ended December 31, 2018, 2019 and 2020 was $20,660, $64,097 and $767,203, respectively.As of December 31, 2020, there were $359,147 total unrecognized share-based compensation cost related to unvested options which is expected tobe recognized over a weighted-average period of 1.92 years. Total unrecognized compensation cost may be adjusted for future changes in actualforfeitures.F-65Table of ContentsSEA LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)15.SHARE BASED COMPENSATION (continued)(b)RSAs/RSUs granted to Eligible PersonsThe following table summarizes the Company’s RSAs/RSUs activity under the Plan: Number ofRSAs/RSUs Weightedaverage grantdate fair value Weightedaverageremainingcontractual life Aggregateintrinsic value _$_ Years _$_ Unvested, January 1, 2018 820,207 14.43 9.60 10,933 Granted 4,983,162 12.30 Vested (309,644) 13.93 Forfeited (738,753) 13.75 Unvested, December 31, 2018 and January 1, 2019 4,754,972 12.34 9.17 53,826 Granted 6,249,313 20.50 Vested (2,131,415) 13.67 Forfeited (791,433) 15.22 Unvested, December 31, 2019 and January 1, 2020 8,081,437 18.02 8.93 325,035 Granted 5,034,735 72.37 Vested (3,332,063) 19.25 Forfeited (442,181) 28.74 Unvested, December 31, 2020 9,341,928 46.36 8.64 1,859,511 Share-based compensation cost for RSAs and RSUs is measured based on the fair value of the Company’s ordinary shares on the date of grant.The aggregate grant date fair value of the unvested RSAs and RSUs as of December 31, 2018, 2019 and 2020 was $58,665, $145,597 and $433,085,respectively. These amounts are recognized as compensation expense using the straight-line method for the RSAs and RSUs. The weighted-averagegrant-date fair value of RSAs and RSUs granted during the years ended December 31, 2018, 2019 and 2020 was $12.30, $20.50 and $72.37,respectively. The total fair value of RSAs and RSUs vested during the years ended December 31, 2018, 2019 and 2020 was $4,314, $29,133 and$64,153, respectively.As of December 31, 2020, there was $433,085 of unrecognized share-based compensation cost related to RSAs and RSUs which is expected to berecognized over a weighted-average vesting period of 3.31 years. Total unrecognized compensation may be adjusted for future changes in actualforfeitures.F-66Table of ContentsSEA LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)15.SHARE BASED COMPENSATION (continued)(c) SARs granted to Eligible PersonsFair value of the SARs is measured based on the fair value of the Company’s ordinary shares at the end of each reporting period.Total compensation expense relating to share options, RSAs, RSUs and SARs granted to employees after deducting forfeitures recognized for the yearsended December 31, 2018, 2019 and 2020 is as follows: For the year ended December 31, 2018 2019 2020 _$_ _$_ _$_ Share options: Cost of revenue 1,292 244 130 Sales and marketing expenses 795 156 69 General and administrative expenses 39,654 71,787 179,544 Research and development expenses 1,142 567 401 42,883 72,754 180,144 Cash received for the exercise in the respective years 4,574 20,867 61,949 RSAs/ RSUs: Cost of revenue 2,018 1,714 4,385 Sales and marketing expenses 1,899 3,017 10,100 General and administrative expenses 7,670 26,761 37,433 Research and development expenses 3,545 11,429 45,820 15,132 42,921 97,738 SARs: Cost of revenue 24 319 2,867 Sales and marketing expenses 52 749 5,462 General and administrative expenses 30 313 3,534 Research and development expenses – 13 501 106 1,394 12,364 F-67Table of ContentsSEA LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)16.ORDINARY SHARESThe Company has $7,500,000 authorized share capital which divided into (i) 14,800,000,000 Class A ordinary shares with a par value of $0.0005 each and (ii)200,000,000 Class B ordinary shares with par value of $0.0005 each. Holders of Class A ordinary shares and Class B ordinary shares shall at all times votetogether as one class on all resolutions submitted to a vote for shareholders’ approval or authorization, except for certain class consents required under theMemorandum and Articles of Association. Each Class A ordinary share shall be entitled to one vote, and each Class B ordinary share shall be entitled tothree votes, on all matters subject to the vote at general meetings of the Company.The Company completed the follow-on offering in March 2019 and December 2020, and issued an aggregate of 69,000,000 and 15,180,000 ADSs, respectively,representing 69,000,000 and 15,180,000 Class A ordinary shares for total proceeds, net of issuance costs of $1,517,958 and $2,908,299, respectively.17.ACCUMULATED OTHER COMPREHENSIVE INCOMEThe changes in accumulated other comprehensive income by component, net of tax of nil, are as follows:Unrealizedfair valuegain (loss)on available-for-saleinvestments Foreigncurrencytranslation Total -$ -$ -$ Balance as of January 1, 2018– 10,701 10,701Current year other comprehensive income (loss)18,269 (13,771) 4,498Balance as of December 31, 201818,269 (3,070) 15,199Current year other comprehensive (loss) income(12,869) 3,119 (9,750)Balance as of December 31, 20195,400 49 5,449Current year other comprehensive (loss) income(4,419) 3,651 (768)Balance as of December 31, 2020981 3,700 4,681F-68Table of ContentsSEA LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)18.RESTRICTED NET ASSETSCertain of the Company’s subsidiaries and VIEs are restricted in their ability to transfer a portion of their net assets to the Company in accordance with thelocal laws and regulations.Certain jurisdictions where the Company has subsidiaries or VIEs require those subsidiaries or VIEs to establish and fund statutory reserves, details of whichare listed below:Statutory reserveThe movement of statutory reserve during the years ended December 31, are as follows: December 31, 2019$ 2020$ At the beginning of the financial year 46 46 Transferred from retained earnings – 2,317 At the end of the financial year 46 2,363 TaiwanThe subsidiary in Taiwan is required to set aside 10% of its profit after tax to legal reserve in accordance with Taiwanese regulations until the legal reserveamount equals to its total paid-up capital. In the event that the subsidiary incurred no loss, the portion of legal reserve exceeding 25% of the paid-up capitalcan be used for distribution to shareholders in the form of new shares or cash. As of December 31, 2018, 2019 and 2020, the subsidiary in Taiwan had anaccumulated reserve of $33, $33 and $99, respectively.ThailandThe Thailand regulations require that a private limited liability company shall allocate not less than 5% of its retained earnings to a legal reserve, until thisaccount reaches an amount not less than 10% of the registered authorized capital. The legal reserve is not available for dividend distribution. As of December31, 2018, 2019 and 2020, the subsidiary in Thailand had an accumulated reserve of $13, $13 and $13, respectively.The PRCThe PRC subsidiaries of the Company are required to provide for certain statutory reserves, namely a general reserve, an enterprise expansion fund and astaff welfare and bonus fund. As of December 31, 2018, 2019 and 2020, the Company’s PRC subsidiary had an accumulated reserve of nil, nil and $2,251,respectively.IndonesiaThe Indonesian regulations require a limited liability company to reserve a certain amount from its net profit each year as a reserve fund until such fundamounts to at least 20% of its issued and paid-up capital. As of December 31, 2018, 2019 and 2020, the Company’s Indonesia subsidiaries have notappropriated any funds into the statutory reserve account.F-69Table of ContentsSEA LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)19.TAXATIONEnterprise income taxCayman IslandsThe Company is a company incorporated in the Cayman Islands and conducts its primary business operations through its subsidiaries and its consolidatedVIEs. Under the current laws of the Cayman Islands, the Company is not subject to tax on income or capital gains.SingaporeSubsidiaries incorporated in Singapore are subject to the Singapore Corporate Tax rate of 17% for the years ended December 31, 2018, 2019 and 2020. GarenaOnline was granted an additional five-year Development and Expansion Incentive (“DEI”) by the Singapore Economic Development Board (the “EDB”)commencing from January 1, 2017, which grants a concessionary tax rate of 10% on qualifying income, subject to certain terms and conditions imposed bythe EDB.OthersSubsidiaries incorporated in other countries are subject to the respective statutory corporate income tax rates of the countries where they are resident.Domestic statutory corporate income tax rate in Indonesia was reduced from 25% to 22% with effect from the financial year 2020 and will be further reduced to20% for the financial year 2022 and onwards.In March 2021, the Philippines reduced its corporate income tax rate from 30% to 25%, effective retroactively from July 1, 2020.Income tax expense comprises: For the year ended December 31, 2018$ 2019$ 2020$ Current income tax 7,949 56,296 117,649 Deferred tax (19,797) (4,333) (27,451)Withholding tax expense 15,936 33,901 51,442 4,088 85,864 141,640 F-70Table of ContentsSEA LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)19.TAXATION (continued)Enterprise income tax (continued)The reconciliation of tax computed by applying the tax rate of 17% which is also the statutory corporate income tax rate for its Singapore’s corporate officefor the years ended December 31, 2018, 2019 and 2020 is as follows: For the year ended December 31, 2018$ 2019$ 2020$ Loss before income tax and share of results of equity investees (953,880) (1,368,619) (1,483,238) Tax expense computed at tax rate of 17% (162,160) (232,665) (252,150)Changes in valuation allowance 197,257 265,776 403,329 Non-deductible expenses 1,797 4,207 9,554 Effect of concessionary tax rate and tax reliefs (6,139) (42,404) (82,951)Withholding tax expense 15,936 33,901 51,442 Foreign earnings at different tax rates (38,099) 60,721 15,103 Others (4,504) (3,672) (2,687) 4,088 85,864 141,640 Deferred taxThe significant components of deferred taxes are as follows: December 31, 2019$ 2020$ Deferred tax assets: Property and equipment 4,380 2,904 Advances from customers 507 401 Deferred revenue 93,956 141,356 Unutilized tax losses and unused capital allowances 586,944 960,998 Provision and accrued expenses 12,955 21,170 Others 3,967 9,082 Valuation allowance (619,272) (1,016,676)Total deferred tax assets 83,437 119,235 Deferred tax liabilities: Property and equipment (1,002) (2,001)Intangible assets (2,577) (433)Deferred channel costs (9,448) (13,750)Others (1,045) (4,673)Total deferred tax liabilities (14,072) (20,857)Net deferred tax assets 69,365 98,378 F-71Table of ContentsSEA LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)19.TAXATION (continued)Deferred tax (continued)The use of these tax losses and capital allowances is subject to the agreement of the tax authorities and compliance with certain provisions of the taxlegislation of the jurisdiction in which the entity operates. These tax losses have no expiry date except tax losses approximating to $1,131,293, $1,773,877 and$1,671,044 as of December 31, 2018, 2019 and 2020, respectively. The tax losses of $1,671,044 as of December 31, 2020 will expire from 2021 to 2031.The utilization of deferred tax assets recognized by the Group is dependent upon future taxable income in excess of income arising from the reversal ofexisting taxable temporary differences.As of December 31, 2020, no deferred tax liability has been recognised on the undistributed earnings of its foreign subsidiaries as the Company either intendsto permanently reinvest the undistributed earnings to fund its future operations or no withholding tax is imposed on the remittance of undistributed earningsin certain jurisdiction.20.LOSS PER SHAREBasic and diluted loss per share for each of the periods presented is calculated as follows: For the year ended December 31, 2018$ 2019$ 2020$ Numerator: Net loss attributable to ordinary shareholders (961,241) (1,462,799) (1,618,056) Denominator: Weighted-average number of shares outstanding—basic and diluted 338,472,987 436,601,801 477,264,888 Basic and diluted loss per share: (2.84) (3.35) (3.39)The following potential common shares were excluded from calculation of diluted net loss per share because their effect would have been anti-dilutive for theperiods presented: For the year ended December 31, 2018 2019 2020 Share options 50,706,882 52,188,554 50,090,731 RSAs/RSUs 4,754,972 8,081,437 9,341,928 Convertible notes 75,430,735 52,718,141 37,370,919 130,892,589 112,988,132 96,803,578 F-72Table of ContentsSEA LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)20.LOSS PER SHARE (continued)The denominator for diluted loss per share for the years ended December 31, 2018, 2019 and 2020 does not include any effect from the Capped Calls (Note14(b)) because it would be anti-dilutive. In the event of conversion of any or all of the 2024 Convertible Notes and 2025 Convertible Notes, the shares thatwould be delivered to the Company under the Capped Calls are designed to neutralize the dilutive effect of the shares that the Company would issue underthe convertible notes.During the years ended December 31, 2019 and 2020, respectively, the Company issued 6,000,000 and 6,000,000 Class A ordinary shares to its sharedepositary bank which will be used to settle share incentive awards. No consideration was received by the Company for this issuance of Class A ordinaryshares. These Class A ordinary shares are legally issued and outstanding but are treated as escrowed shares for accounting purposes and therefore, havebeen excluded from the computation of loss per share. Any Class A ordinary shares not used in the settlement of share incentive awards will be returned tothe Company.During the years ended December 31, 2019 and 2020, respectively, 5,720,615 and 6,109,161 issued Class A ordinary shares were used to settle the shareincentive awards.F-73Table of ContentsSEA LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)21.RELATED PARTY TRANSACTIONS(a) Related parties(1)Name of related partiesRelationship with the Company i) Tencent Limited and its affiliates (“Tencent”)A shareholder of the Company(1)These are the related parties that have engaged in significant transactions with the Company for the years ended December 31, 2018, 2019 and2020.(b)The Company had the following significant related party transactions for the years ended December 31, 2018, 2019 and 2020: 2018$ 2019$ 2020$ Royalty fee and license fee to: - Tencent 96,713 122,234 110,686 Services provided by: - Tencent 13,066 19,005 23,352 Issuance of convertible notes to: - Tencent 50,000 – – Interest expense to: - Tencent 2,092 563 – Conversion of convertible notes (principal amount) by: - Tencent – 100,000 – (c)The Company had the following related party balances for the years ended December 31, 2019 and 2020: December 31, 2019$ 2020$ Amounts due from related parties: Current: - Tencent 477 553 Amounts due to related parties: Current: - Tencent 34,970 38,416 F-74Table of ContentsSEA LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)22.SEGMENT REPORTINGThe Company has three reportable segments, namely digital entertainment, e-commerce and digital financial services. The CODM reviews the performance ofeach segment based on revenue and certain key operating metrics of the operations and uses these results for the purposes of allocating resources to andevaluating financial performance of each segment.Description of Reportable SegmentsDigital entertainment – Garena’s platform offers mobile and PC online games and develops mobile games for the global market. Garena is the global leader ineSports, it also provides access to other entertainment content and social features, such as live streaming of gameplay, user chat and online forums.E-commerce – Shopee’s platform is a mobile-centric, social-focused marketplace. It provides users with a convenient, safe, and trusted shopping environmentwith integrated payment, logistics infrastructure and comprehensive seller services. Products from manufacturers and third parties are also purchased andsold directly to buyers on Shopee platform.Digital financial services – SeaMoney provides a variety of payment services and loans to individuals and businesses. It is an important paymentinfrastructure supporting the Company’s digital entertainment and e-commerce businesses. In addition, SeaMoney also integrates with third-party merchantpartners and covers a broad set of consumption use cases.A combination of multiple business activities that does not meet the quantitative thresholds to qualify as reportable segments are grouped together as“Other services”.F-75Table of ContentsSEA LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)22.SEGMENT REPORTING (continued)Information about segments for the years ended December 31, 2018, 2019 and 2020 presented were as follows: For the Year ended December 31, 2018 DigitalEntertainment$ E-Commerce$ Digital FinancialServices$ OtherServices$ Unallocatedexpenses(1)$ Consolidated$ Revenue 462,464 269,578 11,458 83,468 – 826,968 Operating income (loss) 69,449 (893,489) (34,056) (62,548) (68,124) (988,768)Non-operating income, net 34,888 Income tax expense (4,088)Share of results of equity investees (3,066)Net loss (961,034) For the Year ended December 31, 2019 DigitalEntertainment$ E-Commerce$ Digital FinancialServices$ OtherServices$ Unallocatedexpenses(1)$ Consolidated$ Revenue 1,136,017 834,295 9,223 195,843 – 2,175,378 Operating income (loss) 529,524 (1,131,771) (116,309) (39,864) (132,812) (891,232)Non-operating loss, net (477,387)Income tax expense (85,864)Share of results of equity investees (3,239)Net loss (1,457,722)F-76Table of ContentsSEA LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)22.SEGMENT REPORTING (continued) For the Year ended December 31, 2020 DigitalEntertainment$ E-Commerce$ Digital FinancialServices$ OtherServices$ Unallocatedexpenses(1)$ Consolidated$ Revenue 2,015,972 2,167,149 60,785 131,758 - 4,375,664 Operating income (loss) 1,016,793 (1,442,593) (520,075) (49,006) (308,444) (1,303,325)Non-operating loss, net (179,913)Income tax expense (141,640)Share of results of equity investees 721 Net loss (1,624,157)(1)Unallocated expenses are mainly relating to share-based compensation, general and corporate administrative costs, such as professional fees and othermiscellaneous items that are not allocated to segments. These expenses are excluded from segments results as they are not reviewed by the CODM aspart of segment performance.F-77Table of ContentsSEA LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)22.SEGMENT REPORTING (continued)Revenue from external customers is classified based on the geographical locations where the services were provided. For the Year Ended December 31, 2018$ 2019$ 2020$ Revenue Southeast Asia 581,336 1,378,141 2,791,894 Latin America 14,713 282,618 790,308 Rest of Asia 229,773 489,291 655,007 Rest of the world 1,146 25,328 138,455 Consolidated revenue 826,968 2,175,378 4,375,664 Long-lived assets consist of property and equipment, operating lease right-of-use assets and intangible assets. As at December 31, 2019$ 2020$ Long-lived assets Southeast Asia 389,997 509,922 Rest of Asia 119,043 128,285 Rest of the world 7,565 22,522 516,605 660,729 No single customer accounted for 10 percent or more of the Company’s total revenue for the years ended December 31, 2018, 2019 and 2020.23.FAIR VALUE MEASUREMENTSASC 820 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. ASC 820 requiresdisclosures to be provided on fair value measurement.ASC 820 describes three main approaches to measuring the fair value of assets and liabilities: (1) market approach; (2) income approach; and (3) costapproach. The market approach uses prices and other relevant information generated from market transactions involving identical or comparable assets orliabilities. The income approach uses valuation techniques to convert future amounts to a single present value amount. The measurement is based on thevalue indicated by current market expectations about those future amounts. The cost approach is based on the amount that would currently be required toreplace an asset.F-78Table of ContentsSEA LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)23.FAIR VALUE MEASUREMENTS (continued)In accordance with ASC 820, the Company measures cash equivalents, restricted cash, available-for-sale investments, quoted equity securities investments,certain other assets, 2017 Convertible Notes and SARs at fair value. The liability component of the 2023 Convertible Notes, 2024 Convertible Notes and 2025Convertible Notes is measured at fair value on its issuance and extinguishment date. Cash equivalents are classified within Level 1 because they are valuedusing quoted market prices in active markets for identical assets and liabilities.As of December 31, 2019 and 2020, Level 3 assets and liabilities of the Company included investments in convertible loans, exchangeable loan and preferenceshares of investees, other assets and 2017 Convertible Notes.Investments in debt securities – for long term investment in debt securities, the Company used the Market approach to determine the equity value of theinvestees. The fair value of debt securities was then derived from the equity value of the investees taking into account business risk, volatility and discountrates which requires the Company to make complex and subjective judgments. For short-term investment in debt securities, the carrying amount isapproximate fair value due to its short-term nature.Other assets – the Company used Market approach to determine the fair value of certain assets by comparing to the sale and purchase transactions ofcomparable assets in the market, adjusted with differences such as size, physical condition, location and etc.2017 Convertible Notes – the Company used a binomial tree model to determine the fair value of the 2017 Convertible Notes. The binomial pricing modeltraces the evolution of the 2017 Convertible Notes’ key underlying variables in discrete-time. This is done by means of a binomial lattice (tree), for a numberof time steps between the end of reporting period, which was December 31, 2019. The valuation model requires the Company to make complex and subjectivejudgments on certain underlying inputs applied to the valuation models including the expected volatility of its share price and estimated credit spread as ofDecember 31, 2019.2023 Convertible Notes, 2024 Convertible Notes and 2025 Convertible Notes – the Company used discounted cash flow method to determine the fair valueof the liability component (non-recurring, Level 3). The discounted cash flow taking into the present value of expected future cash flows from coupon interestand redemption amount, discounted by the credit yield as at issuance date with reference to similar instruments that did not have associated convertiblefeatures.F-79Table of ContentsSEA LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)23.FAIR VALUE MEASUREMENTS (continued)Assets and liabilities measured at fair value on a recurring basis are summarized below: Fair value measurement at December 31, 2019 Quoted prices inactive markets foridentical assets(Level 1)$ Significant otherobservable inputs(Level 2)$ Unobservableinputs(Level 3)$ Total$ Cash equivalents 55,723 – – 55,723 Money market funds 537,615 – – 537,615 Held to maturity investments 30,540 – – 30,540 Available-for-sale investments – – 128,418 128,418 2017 Convertible Notes – – (29,481) (29,481)Share appreciation rights (1,500) – – (1,500) 622,378 – 98,937 721,315 Fair value measurement at December 31, 2020 Quoted prices inactive markets foridentical assets(Level 1)$ Significant otherobservable inputs(Level 2)$ Unobservableinputs(Level 3)$ Total$ Cash equivalents 74,272 – – 74,272 Held to maturity investments 100,071 – 286 100,357 Available-for-sale investments 5,688 – 21,357 27,045 Equity securities 76,000 – – 76,000 Other assets – – 19,024 19,024 Share appreciation rights (11,640) – – (11,640) 244,391 – 40,667 285,058 F-80Table of ContentsSEA LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)23.FAIR VALUE MEASUREMENTS (continued) Level 3instrumentsmeasured atfair value onarecurringbasis$ Assets: Available-for-sale investments Current: Balance at January 1, 2018 and January 1, 2019 – Investment during the year 72,000 Balance at December 31, 2019 72,000 Conversion into ordinary shares of investee (72,000)Addition 20,429 Fair value gain included in other comprehensive income 910 Balance at December 31, 2020 21,339 Non-current: Balance at January 1, 2018 19,249 Investment during 2018 33,000 Impairment loss (144)Fair value gain included in other comprehensive income 18,269 Balance at December 31, 2018 70,374 Impairment loss (1,087)Fair value loss included in other comprehensive income (12,869)Balance at December 31, 2019 56,418 Impairment loss (51,000)Fair value loss included in other comprehensive income (5,400)Balance at December 31, 2020 18 Other assets Balance at January 1, 2018, January 1, 2019 and January 1, 2020 – Acquisition of subsidiaries 8,860 Additions 13,340 Disposals (363)Write-down (3,713)Exchange differences 900 Balance at December 31, 2020 19,024 F-81Table of ContentsSEA LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)23.FAIR VALUE MEASUREMENTS (continued)Liabilities: Level 3instrumentsmeasured atfair value onarecurringbasis$ 2017 Convertible Notes Balance at January 1, 2018 (726,950)Fair value gain 41,259 Conversion into Class A ordinary shares 48,975 Balance at December 31, 2018 (636,716)Fair value loss (472,877)Conversion into Class A ordinary shares 1,080,112 Balance at December 31, 2019 (29,481)Fair value loss (87)Conversion into Class A ordinary shares 29,568 Balance at December 31, 2020 – The Company’s valuation techniques used to measure the fair value were derived from management’s assumptions of estimations. Changes in the fair valueof the available-for-sale investment is recorded in the accumulated other comprehensive income (loss). Changes in the fair value of other assets and 2017Convertible Notes are recorded in the consolidated statements of operations.24.COMMITMENTS AND CONTINGENCIESPurchase commitmentsThe Company has commitments to purchase property and equipment of $12,357 and $165,717, committed licensing fee payable for the licensing of game titlesof $1,900 and $2,799 and commitment to invest in certain companies of $24,056 and $30,136 as of December 31, 2019 and 2020, respectively.Minimum guarantee commitmentsThe Company has commitments to pay minimum guarantee of royalty fee to game developers for certain online games it licensed from those gamedevelopers. As of December 31, 2019 and 2020, the minimum guarantee commitment amounted to $31,733 and $24,473, respectively, for its launched games aswell as licensed but yet to be launched games.F-82Table of ContentsSEA LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)24.COMMITMENTS AND CONTINGENCIES (continued)OthersThe Company has commitments to extend credit to customers on demand and interest receivables on non-performing assets which is not accrued. As ofDecember 31, 2019 and 2020, the undrawn credit facilities and interest receivables on non-performing assets amounted to nil and $6,533 and nil and $2,295,respectively.25.SUBSEQUENT EVENTSIn February 2021, the Company, through its wholly-owned subsidiary, acquired 100% shares of Composite Capital Management, a Hong Kong-licensedglobal investment management firm and its underlying subsidiaries, primarily through shares consideration.F-83

Continue reading text version or see original annual report in PDF format above